Daily Analysis

By: TheWaveTrading | Wed, Jun 20, 2012
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Today is FOMC day.

This week's price action is clearly suggesting that Mr. Market is betting on good news.

As you know my long term working scenario has been/still is that price from the November 2008 low is unfolding a counter trend wave (X).

The wave (X) is tracing a Double ZZ:

So far I have been looking for a potential ZZ = (ABC). If this is the correct count then price should be close to complete the wave (B), and a wave (C) down is expected to establish with a lower low an important bottom.

SPX
Larger Image

I had assigned to the counter trend wave (B) rebound, which began at the June 4 low, a reasonable target in the range 1344 - 1363.

We also knew that the 50 d MA = 1347 and a gap at 1353.39 could have played as a topping "sweet spot".

This has not been the case and the 0,618 retracement at 1362,84 and a potential horizontal resistance at 1365.88 have been left as the last line in the sand that can maintain alive the option that price will unfold a Zig Zag from the April 2 top.

On the other hand if price, maybe after a short lived pullback, is able to break above 1366 then a potential Triangle or Flat would increase the odds of being the correct EWP.

In this case price will still be unfolding a wave (B) but price, on June 4, would have already established the low point of the EWP.

SPX
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It may sound complex but it is not.

Going forward the correct scenario will be dependent upon how price behaves in the next pullback, which should be triggered soon, since as I mentioned yesterday we have several momentum and breadth indicators in overbought territory.

If we look at the McClellan Oscillator, yesterday it closed at an overbought 82.74 reading, but again without negative divergence, therefore as long as the trend line support is not breached I cannot adopt a bearish stance.

NYSE McClellan Oscillator

Longer term market breadth indicators such as the weekly stochastic of the Summation index have issued a buy signal which usually can remain in force until the weekly stochastic enters the overbought zone.

NYSE Summation Index

Since I always "weight" in the technical cocktail not only EW counts but also the message given by momentum & breadth indicators I suggest that we have to be prudent to entrust an immediate reversal of price.

Therefore for the time being I will wait for the reaction to today's FOMC announcement which hopefully should give us clues regarding the short term most likely outcome.

So even though price has satisfied a potential reversal for the assumed wave (B), within the option of a Zig Zag (there is a pending large wave (C) down), both in terms of time and retracement, the short-term price structure does not give enough confidence that the countertrend rebound is over, while the overbought readings reached are suggesting that at least a pullback is due.

The structure of the expected pullback corrective / impulsive will dictate over the correct EWP.

 


 

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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