SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Fri, Oct 12, 2012
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Reminder:

Since yesterday price negated an impulsive sequence from the October 5 lower high, the overall EWP is getting more complex and probably the final target will be closer to 1396 than 1370.

Keep in mind that in addition to the planning of Mr. Bernanke, October is usually a month where important bottoms are established.

First of all I want to show you again the potential reversal pattern (Ending Diagonal) that VXX seems to be forming for two reasons:

VXX Daily Chart
Larger Image

If the Ending Diagonal plays out we know that:

Daily momentum is also suggesting that the odds for multiday bounce are large since we have the Stochastic in oversold territory and the RSI is no longer pointing down. Here we know that any bearish bounce must maintain the RSI below the Trend Line Resistance.

SPX Momentum Chart
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As I mentioned yesterday the absence of positive divergence of the RSI reduces the solidity of the 1430 support, therefore the probability that it will be breached is large.

The McClellan Oscillator should give us clues regarding the longevity of a potential multi-day bounce. Here we have a trend line resistance and the zero line where the Oscillator is expected to reverse to the down side. On the other hand if it breaches the peak established on October 5 all bearish bets are off (I give a low probability to this outcome).

NYSE McClellan Oscillator Chart

The NYSE Adv-Dec Volume has a positive divergence ==> another warning of a potential bounce.

And we can also see that selling pressure has been really muted during the down leg off the October 5 lower high.

NYSE Advance/Decline Volume Chart

Now lets move on to the daily SPX chart.

Due to the "killing" of a potential impulsive wave (C) down even if the end result should be similar I have to modify the potential count to a Double Zig Zag. If this EWP is the correct one price is now involved with the wave (A) of the second Zig Zag.

Going back to the oversold readings of the Stochastic here we also have price attacking the lower BB, which usually is also a warning of a potential pause of the downtrend. If today we see further weakness I doubt that price will establish an eod print below the trend line support off the June lows and the 50 d MA = 1427.

If a multiday bounce is in the cards then price MUST fade and reverse at the target box = 1447 - 1451.

SPX Daily Chart
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Even though the pattern of SPX is getting more complex we should not lose sight of the DJIA Double Top target at 13081.

By the way yesterday's Inverted Hammer is another warning of a potential short-term bottom. Maybe today price will test the June's TL & 50 d MA = 13081.

DOW Daily Chart
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Have a great weekend!!!!

 


 

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.

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