Last Thursday I mentioned that:
"Despite that the technical "conditions" are suggesting a larger corrective pattern if price kills the short term bearish set up it would mean that the up leg off the December 19 low is not over and we will have to wait for another topping pattern probably in the next horizontal resistance located in the 1347 area."
On Friday SPX broke with firmness the 2007 trend line resistance, killing the potential bearish set up of the previous weekly Spinning Top.
While I have been maintaining the idea that price is involved in a sideways correction since the July 2011 high, this unquestionable strength is beginning to cast reasonable doubts upon the idea that price is tracing a flat, which implies a retest of the October lows, instead price could have already resumed the intermediate up trend off the March 2009 low, something that we have to be aware of if NDX keeps pressing above new highs.
For the time being I keep maintaining the attention on the EW pattern from the October 4 low, which suggests that a Zig Zag is underway, with a potential target in the area of 1376.
If the assumed wave (3) does not pause at the immediate horizontal resistance at 1347 the next target may be located at the 1.382 extension = 1352
Yesterday the inside day candlestick may be suggesting a high, but as long as Friday's gap is not closed we will not have a conformation.
Once the wave (3) is in place the wave (4) pull back should last at least 1 week.
In the technical front the overbought readings of momentum and breadth indicators are suggesting that at least a short-term reversal should not be too far away:
- The daily RSI is above the 70 line, while the Stochastic has negative divergence:
- The Summation Index is clearly overbought:
- Multiple negative divergence of the NYSE 10 dsma adv-dec volume:
- Negative divergence in the McClellan oscillator:
To sum up:
Despite the longer term time frame potential outcome has improved the EW pattern from the October 4 low in addition to the technical indicators are suggests that price should be on the verge of a correction, which will be followed by further upside. Once the Zig Zag from the October 4 low is completed we will be able analyse with a larger confidence the long-term time frame pattern.