I am with the "holiday mode turned on" therefore from now until July 14th I will not post the technical updates on a regular basis. Then from July 14 until mid August I will turn off the computers in order to rest and clear my head away from the screens, although a laptop always comes with me.
Lets go to the charts.
Reminder of my preferred long-term count:
From the October 2011 lows price is expected to unfold the last Zig Zag (ABC) = wave (Y) up that will establish a major top by completing the wave (X) off the November 2008 low.
The equality extension target for the wave (Y) is at 1678.
In addition, once/if we have the wave (B) in place, we will able to extrapolate the equality extension target for the wave (C) of (Y), which could have an upside potential move of 347.61 points.
Hence, if my scenario is correct, at the April 2 top price has established the wave (A) and now it is involved in carrying out a corrective wave (B) pullback that could also unfold another Zig Zag (ABC) down, but so far there is no certainty regarding the corrective pattern, therefore we cannot rule out a Double ZZ, a Flat or a Triangle.
Without analyzing in full details the EWP, in the weekly time frame, we already know that if price is unfolding a simple ZZ then the trend line off the March 09 low should not be breached in order not to jeopardize this scenario. Therefore the April 2010 peak at 1219.80 has become a major horizontal support.
As I have already mentioned, I am not following the count that calls for an impulsive decline from the April 2 top.
Even if in the daily time frame we have a visible 5-wave decline, the internal structure of the of the pullback does not have the impulsive status, in addition several major indices in the US like: Dow, NDX, KBE, IWM in my opinion have unfolded a corrective patterns. In Europe the DAX is also suggesting that price is involved in a corrective EWP.
Therefore I run away from the "perma bearish" crowd that is calling for a major reversal in progress.
Instead, as it can be seen in the weekly chart below my scenario calls for a 3-wave down leg that is expected to establish an important bottom in the range 1219.80-1206.85 (0.618 retracement of the rally from the October 4 low). This scenario should allow a rally during the last quarter of 2012.
As you can see I have placed a question mark at the high reached last Tuesday because I am doubtful that the countertrend bounce off the June 4 low is over.
Lets now go into more details:
So far the assumed wave (B) seems to be unfolding a downward Zig Zag.
From the April 2 top, if price has unfolded a Double Zig Zag then at the June 4 low we have the wave (A) of a potential Zig Zag down.
Since the internal structure of the rebound form the June 4 low is corrective, we know that price has at least a pending wave (C) down.
In a Zig Zag, usually, the wave (C) has the tendency to match the length of the wave (A). In this case if price has established the top of the wave (B) last Tuesday-Wednesday then we have a potential target for the wave (C) at 1207.92
So now we have a completed 3 -wave up leg and a reversal at the 0.618 retracement and the loss of the 50 d MA = 1345.
Friday's Harami candlestick is suggesting that next Monday price could attempt to achieve some more follow-through to the upside but the 50 d MA should act as resistance, and another down leg should be expected.
The daily time frame analysis is clearly bearish friendly.
Key levels on the down side are the 20 dMA = 1320.50, the higher low of the 3-wave up leg at 1306.62 and the 200 dMA = 1295.50
In my opinion despite last week's bearish reversal at the 0.618 retracement key resistance supports the "bearish case" that the countertrend bounce off the June 4 low is over, I remain skeptical and I am not going to rush in calling a trend reversal yet, for the simple reason that, if it still matters, the internal structure of the potential reversal has a deficiency for the "bearish case", since it has a questionable impulsive structure.
Therefore if the current pullback is unfolding a corrective EWP then price has not began yet the trending wave (C) down, hence the odds that price will establish a higher low (Above the June 4 low) are large.
In the 60 min chart below I have my "preferred reading" of the price action off the June 4 low:
- (ABC) up with a truncated wave (5) of (C) on June 20.
- The truncated wave (5) is probably due to a failed Triangle wave (4).
- From my nominal high on Wednesday price has unfolded a 3 wave down leg into Thursday lod = wave (A).
- On Friday price has began a countertrend wave (B) bounce that should fail at the 50 d MA = 1345.
- If my short term scenario is correct one more down leg should complete this small correction in the range 1306.62 - 1303 or at the 200 dMA = 1295.50
- Therefore the overall count from the June 4 low can trace a larger Zig Zag/Double Zig Zag or a Triangle.
If price will unfold a larger Zig Zag/Double Zig Zag then the current wave (B) rebound can reach a speculative trend line resistance in the area of 1400.
This option will "tangle" the intermediate time frame pattern since it may not be a straight forward Zig Zag down instead price could unfold a Flat or a Triangle.
There is another potential option that could play out if price is not able to recover above the 50 dMA and it does not breach the 200 d MA by unfolding a contracting pattern that will conclude with the kick off of the wave (C) down:
To sum up:
- I remain bullish in the long term time frame.
- I am doubtful that the countertrend bounce from the June 4 low is over.
- I expect at least one more down leg from last Wednesday's lower high.
- If the current pullback is corrective then I expect that price will establish a higher low (Above the June 4 low). The 200 d MA = 1295.50 should not be breached.
- I am working with 2 potential EWP: either a larger ZZ/DZZ or a Triangle