Weekly Analysis

By: TheWaveTrading | Sun, Mar 11, 2012
Print Email

US equity indices have proven, once again, an extraordinary strength by recovering from an important sell off that in the case of SPX was originated from an Ending Diagonal. This ending pattern clearly completed the up leg from the December 19 low.

Since the end of November my scenario has remained unchanged. I have been expecting a wave (C) within a Zig Zag from the October 4 low.

A wave (C) always traces a five wave up leg either impulsive or within an ending diagonal. Once the ending diagonal option was aborted I have been working with the impulsive option.

So far the scenario is on track with the third wave of (C) completed on March 1. Therefore this outcome calls for a corrective EWP that will establish the wave (4) which will be followed by the last impulsive / ending diagonal wave (5) up.

Regarding the potential bottom of the wave (4) I have been considering the rising trend line support from the October 4 low as an obvious target.

Larger Image

With the wave (3) of (C) in place then as rule of thumb a wave (4) pullback has to have the right look in terms of time and size compared with the wave (2) pullback, in addition price often satisfies the alternation guideline which would suggest that the wave (4) will unfold either a Flat or a Triangle.

Larger Image

Given the strength of last week recovery odds are quite large that Tuesday's lod has already established the low point of the EWP, the assumed wave (A) of a flat /triangle while the current up leg is the wave (B). If one of these two EWP plays out then the following wave (C) down will give us valuable information since the Triangle option needs a corrective wave (C) while the Flat option requires an impulsive wave (C). I expect to see a positive divergence of the McClellan oscillator if the next down leg takes place.

If price breaches Tuesday's lod, then the most likely bottom for the wave (4) is located at the cluster of support of: the 50d - gap and trend line support in the area of 1325.

I don't pretend to be arrogant but I rule out that the wave (4) correction is already completed since it is too small compared to the size of the wave (2).

But If price remains above the 20 dsma = 1360 then a deviation from a proper EW rule will have occurred and lamentably my short-term scenario will be killed. In this case then I will have to respect that the final wave (5) of (C) is already in progress with a projected target in the range: 1407-1448.

So this is my preferred short term scenario based upon my knowledge of EWP.

Lets now see what the technical indicators are suggesting:

The down thrust, which ended on Tuesday, despite being corrective triggered several sell signals of major breadth indicators like the Summation Index and the NYSE BPI while the strong recovery from Tuesday's lod has allowed a forceful push of the McClellan oscillator back to the zero line and a bullish cross of the daily stochastic.

Despite the strong recovery of price, we can see that the breadth index remains below both the 5d & 10d MA.

Larger Image

ES Globex will play a major role since with a bit of luck it will clear up the next directional move before the US market opens.

In my opinion on Friday price truncated the fifth wave of a Triple ZZ

Therefore if this count is correct and no higher high is achieved during the globex session then SPX could open with a gap down.

Larger Image

Last week I mentioned that I would be closely monitoring AAPL, since in my opinion price is on the verge of completing a wave (B) within a Zig Zag or a Flat. This potential EWP remains valid.

Next week in addition to AAPL I suggest paying close attention to BAC for 2 reasons:

Larger Image

Then SPX intermediate up trend form the March 09 low should not be completed yet.

Larger Image

Next week the main events are:




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.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2016 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com