For a long time I have been maintaining the following "Big picture road map":
From the 2000 top price is tracing a corrective pattern named Double Zig Zag
DZZ= (ABC = W; X; ABC = Y)
In my opinion the wave (W) was established at the November 2008 low. Since then, the wave (X) that by definition is a corrective countertrend move has been in force.
The wave (X) is also unfolding a Double Zig Zag.
Therefore, if the DZZ count is correct, from the October 2011 low price is tracing the last Zig Zag up that once is completed will establish the top of the wave (X). This will be a Major Top since the next price sequence will be the wave (Y) which will be heading back towards the March 2009 lows.
For the shorter time frame, given the unquestionable corrective price structure of the move off the June lows, and a feeble behavior of breadth indicators I have been considering that price was involved in shaping a corrective pattern from the April top which once completed it would have allowed the kick off of the last wave (C) up with a potential retest of the 2007 highs.
In other words I was not conceiving that price could have resumed the intermediate up trend at the June lows, instead I was expecting one of the following corrective EWP: Flat / Expanded Flat or a Triangle.
The 3 corrective options are still possible, but it looks obvious that Central Banks are fully committed to maintain the equity market rallying.
Therefore the wave (X) instead of a Double Zig Zag, it could be unfolding a Triple Zig Zag in which case from the June lows price has began to unfold the wave (A) of the third Zig Zag.
Consequently to the price action I will now consider the second option as the "alt count" since it would allow, given the corrective price structure of the move off the June lows, the resumption of the intermediate up trend.
In addition, if the EUR has established an "important" bottom this option could have chances.
In order to increase the confidence and turn the "alt count" into the preferred one I need to see where the current up leg tops and what kind of pullback price has in mind.
Lets now move on to the short time frame.
The scenario remains the same:
- The move off the June 4 low is corrective.
- In my opinion the best count is a Triple Zig Zag.
- There is a potential bearish rising wedge forming.
- Price is now involved in finishing the last wave (Z).
- The potential target is located in the range 1440 - 1475
In the technical front:
- The summation Index maintains the negative divergence since it is not following the price break out to new highs.
- The Weekly Summation index has even a sell signal in place issued on August 20.
- Momentum Indicators remain bullish, signaling that the advance is likely to continue:
-RSI (14) without negative divergence
-RSI (5) has entered the overbought zone-
-Stochastic is not overbought yet-
-MACD is issuing a bullish cross.
A standard topping process would require the appearance of negative divergence in the "last push up" in shorter-term breadth indicators such as the McClellan Oscillator and the Adv-Dec Volume index. Hence, next week, I will play close attention to their readings.
The key event next week is on Thursday with the FOMC meeting. Maybe it is the "turning window".
- I "enlist" as an alt count the Triple Zig Zag option for the wave (X).
- I maintain the short-term scenario that argues that price is now involved in the late stages of the corrective move from the June 4 low.
- As it is usually the case, once the top is in place, the internal structure of the pullback will give us clues regarding the longer-term time frame pattern.
- Next Thursday the FOMC meeting could be a "turning window."