I maintain, with a high degree of confidence, my short-term scenario, which calls for an overdue pullback of SPX.
If a top is not in place yet, by Wednesday (month end), the upper trend line resistance is at 1380.
If the count that I am following is the correct one then:
- The expected pull back should be the wave (4) of (C) off the October 4 low.
- The potential target is located in the range of the rising trend line support (1310) - gap fill (1289)
- If the alternation guideline is fulfilled then the corrective pattern should unfold a Flat or a Triangle.
Once the wave (4) is in place, an impulsive or ending diagonal wave (5) will complete the Zig Zag form the October 4 low.
When we will have the completed Zig Zag a more meaningful pullback should be expected and it will be the time to review the long-term timeframe EWP, though the probability of seeing substantial higher prices during 2112 are increasing.
Regarding the short term EWP in my opinion SPX is unfolding an Ending Diagonal.
With Friday's higher high, the Fifth can top any moment.
Since the end of January I have often discussed that breadth and momentum indicators were sending warnings of a pending top, however SPX price has maintained a persistent up trend constrained inside a bearish rising wedge.
This wedge cannot go on forever, and in my opinion the probability of a break to the down side is much larger then a move above the upper trend line resistance.
An eod print below 1352.28 will kick off the awaited pullback.
The technical picture has even worsened further:
- Daily MACD with a sell signal since February 14, while the RSI is showing increasing negative divergence.
- Weekly Stochastic of the Summation Index with a sell signal since the first week of February.
- Summation Index with a sell signal since February 14.
While if we analyse the negative divergences the most striking one is given by the NYSE Adv-Dec Volume, which has been diverging with price since January.
While a shorter term time frame indicator like the McClellan oscillator has been falling down since the first week of February while price has kept creeping higher.
In addition to the bearish technical picture we also have sectorial divergence, which is strengthening my short-term outlook.
In this respect I am monitoring:
- KBE (Bank etf). It should have already begun the correction after having completed an ending diagonal. Here my preferred count differs from the SPX one but does not disagree with the expected out come as the pullback can be a wave (X) of a Triple ZZ if price bottoms in the area of the Trend Line support 1 or a wave (B) if the pullback is deeper hence the potential target should be located at the Trend line Support 2.
- If KBE has a top in place, a second leg down will exert obvious selling pressure on SPX.
- If KBE has a top in place then FAZ (Financial 3 x bear etf) should have a bottom. Here I am monitoring an Ending Diagonal & a potential double bottom.
- SMH (Semicond. etf). It should also have begun the correction. Here we can count a complete impulse off the December 19 low.
NDX has been able to get around a potential reversal of AAPL but a second leg down of SMH will not bode well for the technology index.
NDX could be involved in completing with a small Ending Diagonal the wave (3) off the December 19 low
If the short term set up for an equity reversal plays out then VIX has too finally confirm a bottom. For the time being the break out from a large bullish falling wedge has failed but the odds for a Double Bottom are quite large
Regarding the Bond market, the 10 yr TN price structure suggests that it should complete in the next 2-3 weeks a potential Ending Diagonal, but the next large directional move should be to the down side probably tracing a wave (B) of a large Triple ZZ.
If this scenario plays out then it would be aligned with the idea of a pending SPX wave (5) up.
What has not fitted together in the asset puzzle is the EUR which last week performed an unexpected rally.
My short-term count has not changed; as I still believe that price is tracing a corrective wave (B) within a Double ZZ. Hence price should be completing the wave (A) of the second Zig Zag, but aside of being extremely overbought (Friday's candlestick body is above the upper BB), there is no indication yet of a price reversal.
Next resistance is at the 1.3500 = Trend Line resistance of a "speculative" bearish flag then 1.3548
Here the potential EWP would be aligned with SPX primary count.
Next week we have to consider that:
Month end is on Wednesday; hence there will be the convenience of preventing the reversal until next month.
ECB will undertake the second LTRO on Wednesday.