Daily Analysis

By: TheWaveTrading | Fri, May 18, 2012
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Yesterday I mentioned that: " Elliot Wave wise the absence of an impulsive decline or an Ending Diagonal suggests that price has not established yet a tradable bottom. Maybe what is needed is a final "flush out" which would allow a selling exhaustion and capitulation."

My suspicion was confirmed by the price action.

Yesterday it was a different down day, for the first time since the down leg off the May 1 is in force we saw indications of fear although I am not sure that we have seen the final "flush out" that usually occurs at market bottoms.

btw I wanted to make an aside : when I refer to a market bottom I don't mean that price has completed an EWP, for the time being only a low that could open the door to a multiday rebound.

We can detect fear by looking at the VIX chart, since it finally confirmed the Inverted Head & Shoulder which has a theoretical target at 28.50.


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Regarding if yesterday was the final capitulation I have serious doubts since:

Yesterday I also mentioned that: "the equity market momentum and breadth indicators were getting oversold, well today they are even more oversold and several indicators are piling up flashing warnings of "enough oversold?"

There is not a single doubt that the market now is in extremely oversold territory. It does not matter which indicator you look at, across the board the message is the same.

For example the McClellan Oscillator closed yesterday at -100.89.

So we have:

Obviously for the short-term time frame the odds that price is getting closer to some type of a bottom are increasing, but we cannot rule out either that price could accelerate lower, keep in mind that the human emotions can cause a waterfall force over price when there is panic.

Lets go to the charts.

SPX is approaching the target box where we have a cluster of support.

The range is 1300 - 1277.


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It is a trivial statement that somewhere in between price will establish some type of a bottom. But from the weekly chart below we know that regardless the degree of the potential bottom achieved, 1343 is now the critical resistance that price will have to win back in order to attempt a price reversal.

I maintain the idea that the current EWP from the April 5 top is corrective and should establish the bottom of a wave (B). But it will probably consume more time, barring QE announcements from FED or BCE.

So far the weekly candlestick is a Black Marubozu, If Friday ends on a weak note then it could be considered an exhaustion candlestick. Usually a Marubozu is followed by a small range body. We shall see what fate will price have in mind next week.

Regarding the EWP from the April 2 top I am considering two scenarios:

If this is the correct count then price is now involved in establishing the bottom of the wave (A), which is in force since the May (1) lower high.

In other words we need a 3-wave down leg off the May 1 peak, something that can be considered almost fulfilled.

The wave (A) will be followed by a multi-day/week wave (B) rebound before the kick off of the wave (C) down.

If this is the correct pattern then price is now involved in establishing the bottom of the wave (3) of (C).

If this is the case then we know that we need a fiver from the May 1 peak before we can consider that a more important bottom can be considered in place.

Hence when the wave (3) is in place I would expect only a multi-day rebound, which probably will stall at the 1340 horizontal support, from where price would launch the final wave (5).

The overlap with the wave (1) is at 1347.03.


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For the immediate time frame since in my opinion the move from the May 1 peak is not completed yet, if price breaches the 1300 support then we have 2 major areas as potential candidates for a low:

Additionally the 0.382 Fibonacci retracements = 1289 could come into play.


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There are so many tissues that should be analyzed today but I don't have time. I will leave it for the weekend update.

To sum up:

We have an oversold market with fear creeping in and bearish sentiment, but the short term EWP in my opinion is not done yet, therefore the risk for more declines is still large.

That said price is on the way of establishing some type of a bottom.

Today we have the monthly OPEX and the Facebook IPO, I guess that the majority is hoping for a "rally" taking into account that it is 100 billion $ new issue. So SPX eod print will be crucial.

This Friday does not look like a typical one I expect a lot of volatility.

Have a safe one.

And enjoy the weekend.

 


 

TheWaveTrading

Author: TheWaveTrading

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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