SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Wed, Sep 19, 2012
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The "evidence" => corrective internal structure of the pullback from last Friday's top could be suggesting immediate higher levels BUT given:

It is possible, that the 5 - wave up from September 5 higher low at 1401.25, has established the top of the Triple Zig Zag from the June lows.

If this is the case, which is not confirmed yet, as we need to see a lower high, I expected that SPX would enter a potential multi-week pullback phase.

Lets go to the charts.

First one is a 5 min chart where we can see that price has traced an apparent harmless pullback, which I have labeled as a Triple Zig Zag.

SPX 5-Minute Chart
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Keep in mind that for a long long long time every single corrective pullback has been aggressively bought.

Instead I "dare" to consider that price at yesterday's lod has completed the wave (A) of a larger Zig Zag o Double ZZ down.

If this scenario plays out then a likely rebound will have to fail to achieve a higher high. The "logical" area for the failure is located in the range 1465 - 1467.50

The next chart is the one that I have been posting since last Friday.

Here I have the "major" EW reason that should open the door to a larger corrective phase: The impulsive 5 - wave up leg.

SPX 30-Minute Chart
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Once the door of the correction is opened, theoretically, the pullback could last at least one month and might reach the 0.382 retracement at 1395 where today we also have the rising 50 d MA.

In the worst case scenario price should find a bottom at the rising trend line from the October 2011 higher low.

In order that such a bearish scenario pans out price will have to breach a "huge" support in the area 1424 - 1422.

SPX Daily Chart
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In addition to the wave structure also momentum and short term breadth indicators are suggesting that price needs a healthy pause.

1. Momentum:

SPX Momentum
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2. Breadth:

The weakness of the McClellan oscillator is quite intense despite SPX choppy price action.

NYSE McClellan Oscillator

If my bearish short-term scenario plays out then I also expect a correction of EUR, Oil, Gold....etc. (Risk assets), and a rebound of USD & Bonds.

A potential bullish falling wedge of the "fear index" (VIX) would strengthen the short-term bearish scenario for the equity market.

VIX 60-Minute Chart
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Conclusion:

 


 

TheWaveTrading

Author: TheWaveTrading

TheWaveTrading

Contact: If you would like to contact the author, you can e-mail him at thewavetrading@gmail.com

The main objective of this project is to share my views on several markets and asset classes.

In the initial stage TWT website will be a free service.

My main focus will be the equity market with SPX being the leader but I will also follow US equity sectors, major European indices, fixed income, currencies and commodities markets.

My analysis is based upon traditional Technical Analysis, Elliot Wave guidelines and investor sentiment.

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