SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Tue, Oct 9, 2012
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Luckily today I don't have anything substantial to add to what I have been discussing regarding the short-term scenario.

As a reminder below Is what I wrote on Sunday:

"From the September 14 high so far we have the first down leg at 1430.53; wave (A) of a potential Zig Zag or Double Zig Zag down. As I mentioned last Thursday: The irrefutable fact that the current bounce from the September 26 low at 1430.55 is overlapping gives to me a huge confidence that the next directional move is going to be to the down side.

This counter trend bounce is the assumed wave (B). In order to consider that the bounce off the September 26 is over price has to move back below the 20 d MA and close Wednesday's gap up at 1450.99 with an impulsive internal structure, unfolding the wave (C). The "sine qua non" on which much depends for my preferred scenario to play out is that price will have to break through the huge support layer 1430 - 1422 where we have the last reaction low + Trend Line support form the June lows + April 2 high (previous break out area) + rising 50 d MA.

If we do have a down leg but price does not breach 1430 then my count of the June's up leg is wrong, as it will most likely extend higher towards the next resistance located in the area of 1500.

Friday's price action, with SPX gaping up to close lower leaving a bearish Spinning Top, is a strong sign that the bounce off the September 26 reaction low could be done. If it is completed then bears need an eod print below 1456.89 by next Monday/Tuesday. While closing last Wednesday's gap at 1450.99 will most likely seal the deal opening the door for the next battleground in the range 1430-1422. If 1422 goes then price will most likely drop quickly to the next support at the 0.382 retracement = 1396.

If we move on to analyze the internal structure of the rebound from the September 26 low we can see that.

Therefore the short-term bearish scenario is on track.

Yesterday price confirmed with a tight sideways bounce that dip buyers are gone.

The move can even be considered completed with a Double Zig Zag.

If it is over then the next wave (3) down has an extension target in the range: 1440 - 1430.

SPX 5-Minute Chart
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Technically we also have evidence that the trend has shifted to the downside:

SPX MACD Chart
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NYSE McClellan Oscillator

Keep in mind that if price has in mind a correction that will carry price below the support range 1430-1422 then positive divergence of the RSI and the McClellan Oscillator are not allowed == > 50 line of RSI and -44.86 of the MC Oscillator have to be breached.

In the daily chart below we have all the info we need to monitor in order to maintain the degree of high confidence that price is involved in a larger corrective pattern from the September 14 high:

SPX Daily Chart
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Lastly I once again suggest monitoring closely VIX.

As I mentioned last Sunday VIX has a potential Double Bottom project, which is strengthened by RSI positive divergence.

VIX Daily Chart
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I am clueless if this bearish (for equities) pattern will play out but in my opinion odds are large for at least a move towards the September 26 peak at 17 as long as yesterday's gap is not closed. We shall see how this potential reversal pattern evolves.

Speaking about Double Bottoms, SPXU has a "nice" one:

SPXU Daily Chart
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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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