Daily Analysis

By: TheWaveTrading | Thu, Jun 21, 2012
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Finally the major event risk agenda is out of the way. Shortly we will know how much more upside inertia can be achieved with an EWP that is so far clearly corrective; hence it is suggesting that price has not established a major bottom at the June 4 low.

The EUR price structure from the June 1 low can only be "classified" as a counter trend bounce.

Probably, price is unfolding a Double ZZ. The pattern is complex to decode hence I cannot rule out a final push higher towards the 1.2785 -1.2818 area.

If price is able to achieve this additional target then the equity market should also be able to stretch higher an already overbought up leg.

But the main issue here is that the overall pattern remains bearish hence once this rebound is over odds are very large that price should resume the downtrend.

The critical pivot support is at 1.2575.

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Regarding SPX, the current rebound can still be considered a wave (B) within a Zig Zag off the April 2 top. If this is the correct count then a pending wave (C) down should drop towards the 1200 area.

But as I mentioned yesterday market breadth indicators are suggesting that this annoying wave (B) could morph the EWP into a Triangle or a Flat.

I am "handcuffed", the market manipulation is restraining the validity of short-term EW counting. Therefore either you go ahead of price or you wait to see if price is able to overcome the next resistance located at 1366.

The key pivot support is located at the 50 d MA = 1347, while an eod print below 1335 will strengthen the odds that the wave (B) is in place.

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Even though the internal structure of the rebound is "tricky", and probably price has not completed yet an ending pattern, I believe that given the overbought readings reached by market momentum & breadth indicators at least a short-term pullback is due soon.

The 10 d MA of the NYSE Adv-Dec Volume is now pointing down although it is still above the trend line support.

NYSE Advance/Decline Volume

Yesterday by "the skin of one's teeth" the daily Stochastic did not issue a sell signal while the RSI ended at the short-term trend line support.

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The IWM "text book" inverted HS is another reason why I am taking a precautionary stance. The theoretical target of the pattern looks like an unattainable goal but in order to negate the bullish pattern price has to close Tuesday's gap at 77.31.

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Lastly, as you know, when I have no confidence on a short-term count I always entrust the next directional move to the "message" given by VIX, because VIX does not lie.

In the 60 min chart below I have detected a potential bullish falling wedge.

If VIX today breaks above 20.04 it should play out, in which case the SPX wave (B) should be in place.

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Author: TheWaveTrading


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