SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Thu, Oct 11, 2012
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Today just a brief update as price is behaving according to my preferred short-term scenario that calls for an extension of the correction in force off the September 14 high.

Yesterday I mentioned that a small range body could have followed SPX's Black Marubozu. It was not the case. Price kept drifting lower maintaining alive the impulsive sequence off the October 5 lower high at 1470.96 (Assumed wave (B)).

If the short-term count that I am following is correct, SPX has not completed yet the wave (3), therefore, today I doubt that price can rebound above 1442.23.

SPX 5-Minute Chart
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In the daily chart below we can see that price has reached the pivot support at 1430.55, but the absence of a bullish candlestick raises serious doubts that bulls will be able to accomplish to reverse the short-term trend, which is down.

SPX Daily Chart
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So far I maintain the idea that price may unfold an impulsive wave (C) that could extend lower with a larger 5 - wave sequence, hence price is now involved in finishing the wave (1).

As I mentioned yesterday: "Fortunately SPX has 3 crystal ball pivot levels that depending on how price behaves once they are approached will dictate on the longevity of the current pullback:

  1. 1430 - 1422
  2. 1397 - 1395
  3. 1370 - 1367"

Therefore If price has in mind a large wave (C) down the second pivot support area will most likely be tested.

Yesterday I mentioned that NDX price behavior had strengthened the short-term bearish scenario by breaching the September 28 reaction low and departing from the 50 d MA.

Today the DJIA has also issued a bearish statement by establishing a lower low (Daily time frame). In addition here we have a Double Top with a target at 13081.

DJI Daily Chart
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The daily RSI by losing the 50 line has negated a positive divergence, this sign of strong downside momentum.

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In my opinion the 1340 "make or break" pivot support will not hold for long since:

Today lets watch closely the EUR, since an impulsive decline off The October 5 lower high can be considered done. The extent of a likely countertrend bounce should affect the immediate time frame trend of the equity indices.

EUR 15-Minute Chart
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I strongly suggest to closely monitoring VIX since it will give clues regarding the path of the current corrective pattern of SPX.

Yesterday it closed with a Spinning Top, which is suggesting that a pullback could be in the cards. We still need to see a higher low above the October 10 reaction low in order to solidify a potential Double Bottom project.

The 20 d MA, which stands at 15, is the pivot support.

VIX Daily Chart
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Speaking of volatility I am puzzled by the underperformance of VXX.

Maybe the reason is that price is in the process of constructing an Ending Diagonal.

VXX Daily Chart
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Author: TheWaveTrading


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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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