Yesterday I mentioned:
"I cannot fight THEM with EWP rules and guidelines, so if the wave (5) of (C) is already in progress let be it."
"The short-term price action still suggests that the correction could have more business to accomplish but my confidence atm is only 50%. Certainly a wave (5) requires more conviction from buyers, which has to translate in an improvement of the Mc Clellan Oscillator and the NYSE Adv-Dec Volume."
What a winning chess manoeuvre was executed yesterday by Ben and Jamie.
When the market seemed willing to buy the rumour & sell the news after the release of the FOMC statement, Mr Dimon announced that JPMorgan will raise the dividend and announced a buy-back program. When the news hit the tape financials broke out aggressively with SPX price shooting higher in the final hour of treading leaving a White Marubozu candlestick. (Bullish action but often it is an exhaustion candlestick).
So we finally have the wave (5) of (C) rocketing higher.
How much upside can be achieved by the wave (5)?
Based upon projected extensions: the 1 x 1 target = 1448.50
In the monthly time frame chart we can see that price will soon have to clash against an horizontal resistance layer between 1406-1440
As a reminder of what I expect from price:
Long-term time frame: I expect higher prices during 2012 with a potential Zig Zag in progress that will establish a Major Top.
Short-term time frame: I expect that price is now in the process of completing a Zig Zag from the October 4 low. Once the ABC is completed, I expect a multi-week corrective EWP. Therefore as long as price does not breach substantially the 200 dsma = 1260 the trend will remain up.
Lets go back to the US financials since Banks were the reason of the last hour rally.
- BAC (The awesome impulsive EWP):
Here we got the triangle thrust after a very shallow wave (4). Keep in mind that triangles are continuation patterns but they also "announce" the proximity of a top. (Here we also have a Marubozu).
- C (The ugly EWP):
The most likely EWP is a Zig Zag with the wave (C) unfolding a creative impulsive up leg or an Ending Diagonal. We shall see when/if we get a pullback.
SPX Short Term Price Action:
A wave (5) can only unfold an Impulsive up leg or an Ending Diagonal
- Impulsive Option: If wave (3) is in place then given the shallow wave (2) pullback the wave (4) should be a 1-day affair pullback, or it would take longer if price unfolds a triangle, maybe in order to hold prices until OPEX next Friday.
- Ending Diagonal Option: It would be a remake of the February ending pattern. It will be a long and frustrating 5 -overlapping wave price structure.
Therefore the short-term price reaction in the next 1 - 2 days will most likely define the EWP.
For the immediate time frame with SPX daily candlestick above the BB, the eod print of Trin at 0.38 and Tick at 1047 the odds of at least a mild pullback are larger than a substantial move higher.
In the Technical front:
- Improvement of the McClellan Oscillator:
- Summation Index remains with a sell signal in force and large negative divergence for the assumed wave (5) up:
- Momentum indicators still with mixed signals: RSI has negative divergence; Stochastic is approaching the overbought zone while MACD still has a sell signal in force.
Now it is the time to monitor very closely VIX:
It does not move very often below the BB of the lower envelope. When it does the odds of at least a mean reversion move are very large. Yesterday it closed with a bullish Inverted Hammer.
A short-term warning of a sell equity signal is issued with an eod print above 15.88
The mid point of the envelope today stands in the area of 18.