Weekly Technical Reviewof SPX
I maintain the long-term scenario (Updated on July 9).
I maintain the short-term scenario that calls for a counter trend wave (B) rebound off the June 4 low.
I raise the initial target range for the pending wave (C) down from (1248 - 1207) to (1293 - 1248) since due to the extended move above the April 2 top, now a deep Zig Zag down is less likely, instead, the most likely options are a Flat / Expanded Flat or a Triangle.
- Expanded Flat Option:
- Triangle Option:
Regarding the definition of the EWP of the assumed wave (B), in my opinion, the best way to label this price structure is a complex Triple Zig Zag = (ABC=W; X; ABC=Y; X, ABC=Z)
In my opinion, in spite of having a new sell signal issued by the daily Stochastic and MACD, I doubt that price has reversed to the down side due to the following facts:
The last up leg off the August 2 higher low has a corrective look.
The Internal structure of the down leg off the August 21 high has a corrective look.
It is "inconceivable" for the market to top before Mr. Bernanke speaks at Jackson Hole on August 31.
In addition we have the following critical events:
Mr. Draghi speech on September 1.
US markets are closed for Labor Day on September 3
ECB Meeting on September 6.
NFP on September 7.
FOMC on September 12-13.
Therefore I believe that the Triple ZZ could have one more wave (C) up in the cards.
For the immediate time frame I "venture" to expect one more down leg before price resumes the uptrend with the last wave (C) up.
The target of the second down leg could be located in the range:
1382 (TL off the June 4 low) - 1371 (50 dma)
The lower range could be accomplished if price unfolds the H&S and the target is fulfilled.
If this scenario plays out then the equality extension target for the final wave (C) can be located in the range 1442 - 1454. In addition remember that at +/- 1445 we have the Trend Line that connects the May 2012 & April 2012 tops (weekly chart above)
If I am wrong and price has already completed the Triple ZZ, then since the initial down leg has a corrective look the Triangle Option should be the front-runner.
In the technical front there are no reasons to consider this recovery as sustainable:
- Daily Momentum: Stochastic and MACD have issued new sell signals. These readings are suggesting that my primary short-term scenario could be invalidated despite the corrective look of the current pullback.
Breadth indicators are showing negative divergences:
10 dma NYSE adv-dec volume peaked at the end of June while SPX kept pushing higher.
- Summation Index: The thrust higher ended in the middle of July, managing only a marginal higher high last week. In addition we have the RSI with negative divergence.
Despite price has extended the current rebound above 1422; the internal structure of the move is clearly suggesting that price is involved in a countertrend move.
Additionally Momentum and Breadth indicators are confirming that price should be now involved in a topping process opening the door to a likely correction in September with at least a wave (C) down.
If my longer term scenario plays out then the near term correction will be shallow as it will not substantially breach the June lows.
Once the correction is completed I expect, during the last quarter of 2012, the resumption of the intermediate up trend, with one more up leg that will complete the wave (X) from the March 2009 lows.