Daily Analysis

By: TheWaveTrading | Thu, May 10, 2012
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Tomorrow we should have the confirmation of the weekly MACD sell signal, while the Stochastic is clearly pointing down with no indication that the down-slope is flattening and the RSI is moving away from the Trend Line support that has been in force since August 2011.

Chart 1 - RSI
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Breadth Indicators (NYSE BPI & Summation Index) have issued new sell signals.

The shorter time frame indicator, the McClellan Oscillator, has been collapsing below the zero line. There is no positive divergence in the last three trading sessions despite SPX is attempting to establish some type of a bottom.

$NYMO Chart
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Daily Momentum indicators are not inspiring confidence that price is involved in establishing the end of the correction that began, for SPX at the April 2 top, above all given the MACD sell signal issued on May 4 and the loss of the zero line, which should be considered as a warning that the current EWP should result into lower prices ahead.

However the RSI(5) has entered the oversold zone in addition price has reached a critical support line located at 1340. Hence the odds that price will attempt a bounce are larger then an immediate break down.

Chart 3 - RSI in oversold zone
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I don´t like to jump to a conclusion prematurely, but the Market Momentum and Breadth "picture" is bearish. Therefore as long as I don't see s major improvement I will maintain the scenario that calls for a larger correction that should carry price towards the range 1300-1277. This expected move should not jeopardize the intermediate up trend.

Therefore the main idea is that price has not established a "Major Top", nor it is establishing a "Meaningful Bottom".

Instead price should be involved in tracing a large corrective pattern that, once it is completed it will result in the resumption of the intermediate up trend.

Chart 4
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Unfortunately since we are dealing with a corrective pattern price can easily morph the EWP, making life difficult, to establish the exact location of price.

What is a fact is that so far we have a corrective 3 wave down leg that can result into several different EWP.

Chart 5 - corrective 3 wave down leg
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If the scenario of a larger correction is correct then I will initially follow two possible paths:

The extent of a likely imminent rebound should give us clues regarding the EWP since if price does not breach the 20 d MA = 1382 we should be in the impulsive wave (C) option.

In other words two more impulsive down legs should follow "shallow" 3-wave rebounds, while a strong rebound that is able to attract buyers could mean that price is unfolding a large Double ZZ.

So far I can only establish assumptions.

The short-term price action is ambiguous since, despite two consecutive Hammer candlesticks, both rebound attempts have failed, suggesting that the initial short squeezes have not found follow-through, showing that dip buyers are on the defensive.

Sorry if today I don´t provide insights or if this post is a complete nonsense, but you have to realize that we are in a complex situation and instead of tossing a coin I prefer to wait for more price information.




Author: TheWaveTrading


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