Last week I have been suggesting that the trend line resistance off the 2007 top, which stands in the 1330 area, could be the right spot for a potential short-term top.
Last Thursday, we had a gap up with price making a high at 1333.47 followed by a negative close. On Friday a potential Ending Diagonal should have completed the first down leg of a corrective EW pattern.
Thursday reversal (higher high followed by a lower close) still needs further confirmation by the establishment of a lower high.
Hence my short-term scenario calls for an initial Zig Zag (ABC) with a potential target in the 1300 area.
The end of month first treading day of a new month bullish bias may delay the potential wave (C) down:
Given the corrective structure of the pull back, which has almost retraced the thrust out of a likely Triangle, we can deduce that, if on Thursday price has established a top, it should not be considered a major top, instead, if the count that I am following is the correct one, last week`s high is the wave (3) of (C).
If the wave (3) of (C) is in place then the "assumed" wave (4) should trace a Flat or a Triangle if the alternation guideline is fulfilled. Time wise, the EW pattern should need 1-2 weeks to be completed.
The target of the wave (4) should be located in the range: 1289.09 (gap fill) - 1283 (0.382 retracement).
This scenario will be killed if price overlaps below 1267.06
If this count is the correct one then the final wave (5) of (C) has a projected target at 1376.55
When/if this last up leg occurs we should see negative divergences in the daily RSI and breadth indicators such as the Summation Index.
More reasons for a short term pause:
- Weekly Spinning Top: Confirmed by eow print below 1306.06
- Negative divergence of daily Stochastic + Bearish Cross
- Multiple negative divergence of the 10 dsma NYSE adv-dec volume
Regarding the long-term time frame pattern I maintain the outlook unchanged:
- The pattern from the November 2008/March 2009 is not completed. In my opinion price is unfolding a complex Double ZZ = wave (X) that can attempt a move back towards the 2007 top. This scenario is valid as long as the October low is not considerably breached.
- But I believe that the price may be tracing a flat prior to the resumption of the intermediate up trend, which implies a retest of the October lows.
- An alt count of the Flat may be a Triangle: