Weekly Analysis

By: TheWaveTrading | Sun, Feb 26, 2012
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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:

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.

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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.

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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:

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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:

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- 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.

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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

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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

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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.

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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.

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Next week we have to consider that:




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.

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