Weekly Analysis

By: TheWaveTrading | Sun, Apr 22, 2012
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I maintain my SPX bullish scenario for the Long Term Trend and bearish one for the Short Term Trend.

Long Term Trend: As discussed several times these are the main features of my "working map":

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Short Term Trend:

As mentioned on Thursday: "As a reminder of the SPX's Elliot Wave Pattern location, in my opinion price has completed the 3 -wave up leg off the October 4 low. The internal structure of the first down leg from the April 2 top is clearly corrective, hence we already now that the intermediate trend remains up. Therefore, in my opinion, it is reasonable to expect that price will retrace only a portion of the 3 - wave up leg off the October 4 low. At the moment it is anyone's guess how price will achieve this correction, so far I can only highlight 3 potential EWP: 1) Zig Zag/Double Zig Zag, 2) Flat or 3) Triangle. We also have to take into account the time factor since if indeed price is on the verge of taking a breather the expected correction should satisfy some time relationship with the 6 months rally, this is why, as a guess, I have mentioned that it could take us into the month of June."

Therefore price has either completed the wave (A) of the second Zig Zag of the long term EWP or just the wave (W). For the time being in order to keep the possible path as simple as possible and judging from the EWP of several major US sectors I prefer to follow the scenario of a wave (B) pullback with a possible duration of 2-3 months and a target range = 1340 - 1273 (200 d MA).

Keep in mind that if this is the correct scenario at the moment we don't know which EWP will price unfold but the next down leg could establish the low point of the corrective pattern if price is unfolding a Flat or a Triangle.

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Lets review the potential EWP of some major US indices:

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Therefore it seems reasonable to expect a broad based correction that once it is completed it will allow the resumption of the intermediate up trend.

SPX short-term price action:

It does not happen so often to have a "crystal clear" set up such as the one that price has been unfolding from the April 2 peak:

Once the wave (C) is done price could complete the first part of a larger corrective EWP = wave (A) of a Flat /Triangle or a larger ZZ

Therefore in my opinion it is unquestionable that the short-term price action is bearish and a deeper setback is in the cards.

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Within the assumed wave (B), taking into account that next Wednesday we have the FOMC, the short-term EWP pattern may still allow more limited upside, although so far it seems that price will have a tough time to overcome the 1398 area.

I believe that we could have 3 potential EWP:

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Since on Tuesday, after the close, we have AAPL reporting we better keep an eye on the NDX price reaction on Wednesday.

Here I am proposing 2 EWP options:

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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.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/