Weekly Analysis

By: TheWaveTrading | Sun, Jun 10, 2012
Print Email

I give up.

I have to desist defending a count that, despite satisfying the EW rules, the market is disregarding it.

As you know I have been skeptical of considering the June 4 low as the end of a corrective EWP from the April 2 top due to the lack of impulsiveness in the last down leg off the May 29 lower high at 1334.93 SPX.

For this reason I suggested that price still had a pending wave (C) down either by unfolding an Ending Diagonal or after completing a Triangle.

Even if this outcome is still possible as long as price does not breach the last lower high at 1334.93 I have to admit that the failure to confirm Thursday's bearish Shooting Star has reduced considerably the probability of being the correct path.

In addition breadth indicators are now aligning with a short-term bullish scenario:

NYSE McClellan Oscillator

NYSE Summation Index

Positive divergence of the RSI + break of the trend line resistance. The key issue here is now a move above the 50 line.
New by signal issued by both the Stochastic and the MACD.

Larger Image

The short-term bullish scenario still needs the confirmation of:

Next Friday we shall see if the weekly momentum indicators validate it:

Larger Image

Therefore, even though EW wise, the July 4 is a questionable short-term bottom I have to weigh up in the "puzzle" the bullish statement given by market breadth & momentum indicators which area leaning toward a larger rebound, probably unfolding a Zig Zag or a Double Zig Zag.

So the option of a pending wave (C) down is now "clutching at straws". The Ending Diagonal idea is no longer valid while the Triangle option needs a reversal next Monday with the loss of Friday's lod and a move back towards the 200 d MA = 1288.

Larger Image

Lets go now to the SPX short-term bullish outcome option, which will be confirmed once/if price breaks above 1334.93.

Larger Image

Regarding the long term, it remains unchanged. My preferred scenario calls for a wave (X) from the November 2008 lows that will be completed once price finishes a Zig Zag from the October 4 2011 low, therefore price now is involved in tracing a corrective wave (B) that will be followed by the last wave (C) up, following the "script" of a fourth quarter rally.

For the time being I consider the trend line support from the March 09 low as the potential target for the wave (B).

Larger Image

If next week price confirms the bottom of the wave (A) by breaching the respective May 29's lower high then we could have synchronized this scenario with both the Dow and the NDX.

If this is the case then the waves (B) should have as an initial target the range between the 0.5 - 0.618 retracement. While the 50 d MA could come into play.

For the three indices the 10 d MA is now the critical short-term support.

Larger Image

Larger Image

VIX remains my preferred short-term gauge that should help us in indicating the equity price conduct.

The loss of the trend line support has reversed the trend to the down side. If it holds Friday's lod then it could be shaping a bearish H&S pattern.

If Friday's lod goes then the next support is located at the May 22 low, where we also have the 50 d MA in the area of 20, then the lower BB would come into play.

The stochastic is entering the oversold territory but so far there is no indication of a decrease in the falling inertia.

Larger Image

The EUR will be the "barometer" that should helps us measure the intensity of a potential temporary resumption of "Risk On" trade.

I have mentioned that I don't have a confident count. The main issue is that the fierce sell off from the May 1 should have unfolded an impulsive down leg, but unfortunately in my opinion the internal structure looks more corrective then impulsive, therefore despite the direction of the trend is clearly bearish and there is no indication that price has established an important bottom at the June 1 low, It is tough to detect a reasonable EWP. I can only guess that if price is unfolding a wave (C) from the May 1 lower high then maybe the current rebound is a wave (II) of an Ending Diagonal.

For the short-term, if the equity scenario of a wave (B) rebound is the correct one then, the EUR should have room for additional strength.

The kickoff of a larger rebound needs a eod print above 1.2622 in which case the potential upside target is located in the range: 1.2818 - 1.2929.

Larger Image

The short-term price action is clearly corrective therefore we already know that price is involved in a countertrend bounce.

We could have a Zig Zag or a Double Zig Zag in progress. If it is a Zig Zag and price has established the bottom of the wave (B) at Friday's lod then the projected target is located in the range 1.2773-1.2983.

Larger Image

Lastly, since Spain has formerly required € 100 billion of international financial assistance to help its financial sector, next week the IBEX will be widely watched.

The long-term EW count is quite challenging.

From the 2007 top I am working with a Double Zig Zag (ABC=W; ABC=Y)

Larger Image

In the weekly chart below I have labeled the potential Triple Zig Zag, which began at the Jan 2010 top.

If this count is correct price has completed the wave (A).

A wave (B) rebound should at least recover the 10 w MA = 6879.

Once the wave (B) is in place I expect a wave (C) down that will establish the bottom of the wave (A) of the DZZ from the 2007 top.

Larger Image

In the daily chart below if price recovers above the March 2009 lows then I have highlighted the 7000 area as a potential target for the assumed wave (B).

Larger Image

June is definitely going to be an interesting month.

To sum up:

And now it is time to enjoy the Spain-Italy football match........ FORZA ITALIA!!!!




Author: 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.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2016 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com