Weekly Technical Analysis
Since I would like that the weekly technical review should not be a boring analysis I am not going to repeat every week my preferred long-term and intermediate-term scenarios as long as price does not invalidate my technical reasoning.
Therefore, please read my last long-term update posted on July 9 under the thread Equity USA (Long Term Analysis).
Just as a reminder the 3 major components of my technical assessment are:
Long-term count: From the 2000 Top price is unfolding a Double Zig Zag, therefore now price is involved in completing the wave (X). Once the wave (X) is in place price will begin to unfold the second Zig Zag down towards the 2009 lows.
From the November 2008 low price is unfolding the wave (X) within a Double Zig Zag that is not completed yet.
If this EWP plays out then off the October 2011 lows price has to unfold the last Zig Zag (ABC) up, therefore if this count is correct on April 2012 price has established the wave (A) and we are now in the wave (B) pullback. Once the wave (B) is in place, price will begin the last impulsive/ending diagonal wave (C) up that could challenge the 2000 / 2007 highs.
Regarding the shorter time frame scenario:
Since the internal structure of the rebound off the June 4 low is corrective we already know that the wave (B) should unfold either a Flat/Expanded Flat or a Triangle therefore the next "large" directional move will be to the down side towards the June lows. (I posted these EWP option in my last weekly analysis on August 26)
I am assuming that from the June 4 low price is unfolding a Triple Zig Zag. Since both the last up leg off the August 2 higher low and the current pullback off the August 21 high are corrective it has to mean the EWP off the June 4 low is not over yet, hence if the TZZ count is correct price has to launch the last wave (C) up.
The expected wave (C) up could have an extension in the range of 44 - 72 points.
In addition we have: The weekly BB at 1437 and a trend line that connects the May 2011 high with the April 2012 high in the area of 1445.
I have been suggesting that the current pullback should have unfolded a shallow Zig Zag down with a potential target in the range 1390 - 1382 but so far the potential set up for the third leg down have been invalidated therefore given the refusal of price to unfold a Zig Zag, in compliance with EW rules and guidelines, we have to be open minded and respect the option that price may want to go higher, omitting a logical pattern.
The Bollinger Bands in the daily time frame are narrowing. Usually when the distance between the upper and lower BB becomes small price has the tendency to brake with an intense move the trading range. If my scenario plays out the break out should be to the upside.
Therefore the direct consequence of my technical reasoning should result in a topping process that can open the door to an entirely retracement of the summer rally.
Regarding the immediate time frame, last week, I have been attempting to discover a set up that would allow a 3-wave down leg off the August 21 high, form where price would launch the last wave (c) up but the continued price hesitation has denied so far the kick off of an impulsive decline. So we have a bunch of 3-wave moves, which makes the short-term action difficult to predict.
So, as long as the trend line off the June 4 low is not breached, I maintain a short-term bullish bias with a limited upside potential while the potential down side move can be substantially larger.
I have no idea regarding the correct short-term EWP, I can only highlight:
- The sequence of lower highs/lows maintains the short-term trend down. In addition price could be unfolding a contracting pattern (Bearish Triangle wave (B)
- The internal structure of rebound off last Thursday`s low is once again corrective hence the pullback off the August 21 peak would be over only if price will unfold an ending diagonal which should result in a double top or a marginal higher high (Above the August 21 high)
Regardless of the unknown short-term EWP, it looks like price is shaping a bearish rising wedge.
We can establish 2 horizontal levels that will allow the launch of the last wave up or delay it:
eod print > 1416 will result in the last wave up. (Green line)
eod print < 1397 will result in larger correction with a target at the rising trend line in force since the June 4 low = +/- 1385 (Blue line)
Short-term breadth indicators like the McClellan Oscillator and the NYSE Adc-Dec volume have a positive divergence hence we have a bullish signal.
If NYMO moves above the zero line and its 5 d crossed the 10 d MA we will have a buy signal (Although given the whipsaws seen since the end of July it is not very reliable).
- NYSE Adv-Dec Volume:
- McClellan Oscillator:
Next week VIX should be the best gauge in order to determine the price intentions.
We have a buy equity signal (eod print above BB followed by eod print below the BB).
Daily Stochastic is overbought hence odds are larger for a sell VIX signal.
Next week we have 2 major event risks:
Thursday: ECB meeting
The internal structure of the pattern from the June lows is clearly corrective hence it is suggesting that price is involved in a countertrend move.
This move can be counted as a Triple Zig Zag.
I believe that this corrective pattern has one more up leg in the cards with a potential target in the 1340 area.
Once the TZZ is over I expect a large correction that will not substantially breach the June lows.
If my long-term scenario is correct during the last quarter of 2012 I expect the resumption of the intermediate up trend with the last wave up that will establish a major Top.