My primary short-term scenario, which called for a correction, with price unfolding an ABC down and a potential target in the range 1340-1292, last Wednesday, was aborted by the huge gap up of AAPL and by the FED. I guess that Ben's message was clear: YOU HAVE TO BUY.
The month of April ended with a Doji, but I would not define it as a bearish candlestick, it looks more like the result of a rejection to go lower.
In addition to the FED, the sudden improvement of market breadth is the major reason to abandon, for the time being, bearish scenarios, as long as 1357 SPX holds.
On Sunday I mentioned that the considerable improvement of the Summation Index substantially increased the odds that SPX has not topped at 1422.
In addition we have:
- Bearish AAI bull ratio:
- Insiders are buying:
Therefore if my long-term count is correct the wave (A) off the October 2011 lows is not over yet.
If the up leg off the October 4 low has more business to the upside, then, to keep the EW analysis simple, it would mean that there is a pending wave (5) up that could match the length of the wave (1) = 108.40 points. This missing up leg should be accomplished in a multi week rally.
Therefore as long as price does not breach the now critical support at 1358 I will put on quarantine a bearish bias, since the market correction could be over.
For the short term-time frame I believe that we have two options on the table:
- The assumed wave (5) is already in progress:
The 5 -wave up leg has begun at the April 23 low. If this scenario is correct a wave (2) pull back should not breach the support MA cluster in the area of 1384-1386
- Price may spend some more time in a corrective EWP maybe unfolding a contracting price structure delaying the launch of the pending fifth wave:
Take for granted that during May we will have to deal with a tough market.
There are still potential bearish EWP like an H&S project of SMH (Semiconductors etf):
There are potential bullish EWP like the Triangle project of the DJT:
There are weekly bullish engulfing candlestick like the one of the beaten up XLE, that are presaging at least a large rebound:
In Europe extremely oversold markets could muster at least a large countertrend rebound. It stands out a potential bullish Inverted H&S in the French CAC 40:
Today Europe is closed and we have the usually bullish first day of the month, therefore a bounce could be expected, although in my opinion price has not ended to consolidate last week's surge, and SPX could test the strength of the support cluster in the area of 1386 before deciding to lunch another impulsive up leg or spending more time in a sideways pattern.
The EUR strength without a bullish EWP remains a mystery to me. Therefore maybe something else might be cooking such as a potential larger countertrend EWP like the one in the chart below. I maintain that 1.3300 will most likely be the line in the sand between the bullish and bearish outcome.