So far my preferred short-term scenario is panning out.
Yesterday price has been able to interrupt the sideways move by breaking above last Tuesday hod at 1328.49 SPX.
The anticipated counter trend bounce is now officially in progress.
The internal structure is suggesting that price is unfolding a bearish pattern, either a Zig Zag or a Double Zig Zag, therefore once the upward correction is completed I expect the resumption of the down trend with one more down leg within a potential Double Zig Zag off the April 2 top.
The potential target range of the current rebound is 1340 - 1359.
Key upside levels are:
- 20 d MA that today stands at 1345
- Gap that can be filled and 0.5 retracement in the area of 1353/1354
Since the upward bounce has to unfold at least a Zig Zag (ABC), we have to remain on guard to detect the impulsive or ending diagonal wave (C) which will most likely conclude the rebound.
The support is at the 10 d MA = 1318.
Below, in the weekly chart I have my "road map":
Probably we can set:
- The upper bound for the rebound at the weekly gap = 1353.39
- The short-term support at this week's gap = 1317.82
- The target range of the pending wave (C) down = 1258 - 1207
AAPL could give us clues regarding the potential upside. So far it looks like there is still a pending wave (c) up, maybe after a triangle is completed.
Surprisingly, market breadth indicators are showing underlying strength despite the "weak" price internal structure. For example we can see that the McClellan Oscillator is maintaining intact its thrust higher above the zero line.
Regarding the momentum indicators we have to monitor the RSI as it approaches a long-term trend line resistance and the 50 line and the MACD as it is approaching the crossing zone (bullish cross or failure?).
Friday is a big day for economic reports with NFP & ISM index. Maybe it can be a turn window.
The EUR remains the main concern and could spoil the equity rebound, if it does not find an immediate short-term bottom.
In the monthly chart below we can see that if the 1.2460 area goes then the next support is at the October 2008 lows at 1.2327.
For the immediate time frame I am monitoring if price is on the verge of completing an impulsive thrust out of a triangle.
Lastly, without a shadow of doubt, VIX will have to trigger the alarm bell. So far there is no reversal pattern in sight.
Yesterday's inverted hammer could be a bottoming candlestick but we have to wait and see how it behaves at the trend line support & neckline of the IHS in the area of 20.80.
Daily stochastic has a bearish cross and no sign of reversing the down slopping trend.
To sum up:
- The expected "oversold" bounce is in progress
- Market breadth indicators are surprisingly strong.
- The price internal structure is not very inspiring but it is in compliance of a corrective ABC / ABCXABC
- There is no clear ending pattern is sight hence more upside could be in the cards
- Conservative target range = 1340 - 1353
- The EUR is the main concern
- End of month is around the corner (Bullish bias?)
- Friday's NFP could be a turning window.