Weekly Analysis

By: TheWaveTrading | Sun, Jan 15, 2012
Print Email

Long term time frame EW pattern

We don't have technical reasons that suggests that the rally off the November 2008 low is completed, as a matter of fact, since on July the sell off from a possible triangle has been only a 3-wave down leg, price could be involved in unfolding a wave (B) with a pending second leg down that could have as a target the range: 1074-1010

Therefore the main idea is that price is now in the process of completing a corrective 3-wave up leg, which will be followed by large decline, maybe shaping a Flat or a Zig Zag wave (B).

Larger Image

I have maintained a bullish stance since the EW pattern from the October 4 low is a 3 -wave move which translates into an ABC wave structure. If SPX is now tracing the wave (C) then we know that it has to be either impulsive or unfold an Ending Diagonal, therefore I have to assume that the EW pattern is not completed yet.

In the weekly chart below we can see that if price is able to break through the horizontal resistance at 1293 then the potential target, depending upon the EW structure that finally adopts the wave (C), can be located in the range 1330 (horizontal resistance and trend line from the 2007 top) - 1371 (this summer's peak).

Below we have to watch the 50 w = 1268 & the 10 w = 1244

Larger Image

Even though the EW pattern does allow more upside we have to be aware that price is involved in a topping process. We already have warnings from overbought momentum and breadth indicators in addition to negative divergences, which are alerting that price, is approaching an inflection point.

Larger Image

The above indicators are fulfilling a necessary condition for a Top but it is not sufficient.

More troubling issues:

So much for the scary things, now lets review the short term EW pattern.

The Assumed wave (C) currently, is a 3-wave move therefore as, I mentioned, it cannot be considered over.

Larger Image

Wave (C) options:

Since the up leg off the Dec 19 can be counted either impulsive or corrective we have 2 options:

Assuming that the wave (III) is already in place, price now has to maintain a corrective pullback with the overlap below the wave (I) with a potential bottom at the gap fill = 1257.60 then the final corrective up leg will establish the top of the wave (C) within the converging structure.

Larger Image

As I mentioned on Friday:

“If SPX is tracing an impulsive wave (C) then I even assume that price may be involved in an extended wave (3). If this is the case, in the next pull back, the wave (II) will have to be shorter then 64.69 points and last less then 8 days, therefore the target should be located in the range 1257.60 (gap fill + 200 dsma) - 1243 (50 dsma)”

Keep in mind that we have a large cluster of support in the 1260 area with the gap fill, the 200 dsma, the 0.382 retracement and a rising trend line. While in the area of the 50 dsma we also have the 10 wsma.

Larger Image

If price fails to unfold one of the 2 options discussed above then I will give a second chance to the Triangle scenario.

Larger Image

For the immediate time frame, if price breaches 1274.55 then, in my opinion the up leg off the December 19 low will be locked in. Then it will be a matter of waiting to see where this down leg bottoms.

From the initial structure of the current pull back at least we know that we don’t have a major top in place.

Larger Image

The daily stochastic and RSI are also suggesting that a pullback is in progress. Next week we have to monitor if the MACD ia able to maintain the bullish cross.

Larger Image

In Europe, the DAX has a clear wave pattern. Here, in addition at the moment, the most likely scenario calls for an impulsive wave (C), so I am very anxious to see the extension of the potential pull back.

Larger Image

I will end this weekend analysis with a short comment regarding the EUR but looking at the USD Index.

On Friday the well-defined Double Bottom of the EUR was aborted by the announcement of a massive down grade of Eurozone countries by S&P, however I believe that the EUR could still attempt to establish some type of a bottom. If we look at the daily momentum we still have a positive divergence in both the RSI and Stochastic.

Larger Image

I am not going to show a count for the EUR, I prefer to wait until eod on Monday; instead the USD Index (DX) could be completing an Ending Diagonal.

If the overall count is correct then a wave (B) pullback may reach the range: 79.39 - 77.65

Larger Image

Clearly the lower it drops the upside potential of the equity's wave (C) should be larger.

Next week will be thrilling as we have:




Author: TheWaveTrading


Contact: If you would like to contact the author, you can e-mail him at thewavetrading@gmail.com

The main objective of this project is to share my views on several markets and asset classes.

In the initial stage TWT website will be a free service.

My main focus will be the equity market with SPX being the leader but I will also follow US equity sectors, major European indices, fixed income, currencies and commodities markets.

My analysis is based upon traditional Technical Analysis, Elliot Wave guidelines and investor sentiment.

My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on the long and short side and mainly with leveraged ones (2 x & 3 x).

The advantage of ETF investments is that it allows getting involved in equity indices & sectors, currencies, fixed income, commodities etc.

Therefore the main purpose of TWT will be to establish investment strategies regardless if the market is in an up trend or in a down trend, leveraging the chosen scenario while managing the risk by establishing protective stop losses.

Hence I will always define the risk, I will try to let winners run the wave and I will cut the losses if my strategy is wrong.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2016 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com