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.

SPX MACD Chart
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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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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.

My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on the long and short side and mainly with leveraged ones (2 x & 3 x).

The advantage of ETF investments is that it allows getting involved in equity indices & sectors, currencies, fixed income, commodities etc.

Therefore the main purpose of TWT will be to establish investment strategies regardless if the market is in an up trend or in a down trend, leveraging the chosen scenario while managing the risk by establishing protective stop losses.

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