Yesterday price confirmed that Monday's Doji has established a short-term support at 1267 SPX (December 2011 high).
Yesterday's price action was choppy, with an eod print at the widely watched 200 d MA. As I am writing today's update ES Globex is trading 11 points above its 200 d MA.
I remain convinced that the down leg off the May 29 lower high is not completed yet, therefore this bounce should be a short term affair.
With the 200 d MA temporarily out of the way price will find resistance in the range 1292 - 1299 then above the 10 d MA will come into play.
What I don't expect is Thursday's gap down to be closed at 1310.33.
Yesterday I mentioned that since the down leg off the May 29 lower high has only 3 waves it cannot be considered over.
Recall that I am looking for a wave (C) in progress hence we need either an impulsive 5 -wave down leg or an Ending Diagonal.
Of the 3 potential wave structures I suggested, today with a likely follow through to the upside, the option of an extended wave 3 will be aborted.
So we are left with either a wave (4) bounce, as long as price does not overlap above 1298.90, or an Ending Diagonal if price confirms the overlap.
In addition, the clear corrective structure of this bounce can only strengthen the idea that this move is a technical oversold rebound.
For the larger time frame (From the April 2 top) I am getting quite confident that price will soon begin a bottoming process that will probably materialize by the end of June.
I know that the entire planet is waiting for a move from Central Bankers. Probably Central Banker will step in to prevent a collapse but maybe this time THEY will require a serious approach from Europe to deal with the Eurozone crisis.
Time wise, there still should be a lot of uncertainties until the Greek elections are out of the way on June 17. Three days later the FED will speak.
The USD Index (and the EUR) pattern remains a great concern since, even if we take into account only the last up leg from the May 1 low, the internal structure is not impulsive then there is not an ending pattern in sight.
Therefore the "obscure" wave structure is adding uncertainties, within an EWP pattern that remains bullish for the USD Index (bearish for the EUR).
VIX remains the major indicator that should give us the warning of the end of the current equity bounce.
For the immediate time frame VIX is doing exactly the opposite of SPX:
- Friday's Shooting Star (VIX) vs Doji (SPX).
- Yesterday SPX recovers the 200 d MA vs VIX dropping below it.
As I mentioned yesterday, VIX could be shaping a bearish rising wedge, probably not completed yet.
Therefore it should not breach the lower trend line support and, if it reaches it, we need to see a bullish reversal candlestick, like in the previous three occasions it has been tested.
Today we have the EEC meeting, maybe it is going to be a buy the rumor sell the news.