SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Fri, Oct 12, 2012
Print Email


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
Larger Image

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
Larger Image

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
Larger Image

Have a great weekend!!!!




Author: 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.

Hence I will always define the risk, I will try to let winners run the wave and I will cut the losses if my strategy is wrong.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2016 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com