Weekly Analysis

By: TheWaveTrading | Sun, Jan 22, 2012
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If you have been reading my website you know that I have been suggesting for a long time that we don't have any technical reasons that imply that the rally off the November 2008 low or March 2009 low, depending where you consider completed the EW pattern from the 2007 top, is completed.

In my last weekend post I mentioned: "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)."

The pending second leg down should have a target in the range 1074 -1010

Last week NDX inflicted a deathblow to the "perma" bearish counts with a triumphant higher high above its July's peak. This achievement now even raises logical doubts regarding if price is still involved in a larger corrective pattern or if the intermediate uptrend has resumed its path higher.

As a matter of fact the NDX long term EW pattern that I am "working" with, off the 2002 lows, calls for a Triple Zig Zag in progress.

In addition we have an Inverted H&S whose neck line atm has been successfully tested twice in the monthly time frame and four times in the weekly time frame suggesting that this is a huge support area.

Therefore, at this point, the technology sector could be on the verge of resuming the intermediate up trend.

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As a result since it is technically viable that NDX has set the stage for a break out above the 2011 highs I have to remain open minded and adjust the scenario of SPX accordingly.

Hence in the monthly SPX chart below I have the 2 options:

  1. Flat wave (X)
  2. Price has resumed the Intermediate up trend with a projected target in the range 1510 -1778. The 3m cross over the 6m MA strengthen this scenario.

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I don't want to be misinterpreted, I am not changing radically my primary scenario since I have expected higher prices ahead, the only question that needs to be answered is how price will resume the intermediate up trend.

As a matter of fact if we take into account the EW pattern of the DAX and the EUR, the Flat wave (X) option, in my opinion still has a higher probability of being the correct one.

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Short term EW pattern:

Last week the Ending Diagonal wave (C) option has been killed therefore now I expect that price will unfold a 5-wave up leg from the November 25 low.

The projected extension target for the wave (C) is at 1376.55

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The assumed wave (3) is now challenging the trend line resistance off the May peak. If next week this trend line is breached then the potential top of the third wave could occur in the range 1320 (horizontal resistance) - 1330 (trend line resistance off the 2007 top)

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Since I don't think there is a clear ending pattern yet and we have FOMC day next Wednesday, If on Monday price does not reverse to the down side, then the assumed wave 3 could top after the FED monetary policy update.

To sum up:

In the technical front, we know that the market is overbought but the negative divergences have been erased both in the RSI and breadth indicators such as the Summation Index hence the odds that price is not reaching a major turning point yet are large.

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A shorter time frame breadth indicator, such as the Mc Clellan oscillator, seems to be losing "strength". Here we have a potential double top within a bearish rising wedge.

Also the 10 dsma NYSE adv-dec volume with its multiple negative divergences is suggesting the upside momentum is waning.

Hence price should not be too far off from a multiday correction.




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.

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