Weekly Technical Analysis

By: TheWaveTrading | Sun, Oct 14, 2012
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This weekend I don't have much new to say since price is following the scenario that I have laid out.

Last Friday's brief description remains my preferred road map:

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."

Lets begin with the weekly chart, where we can see new bearish signals:

The key pivot support is at 1422. Once/if it is breached price is expected to drop quickly to the first potential target located in the range 1396 - 1392.

If the range 1396-1392 does not hold then the next and most likely bottoming zone is located in the range of the trend line support in force since the October 2011 lows and the 0.5 retracement of the June's up leg = 1371.

SPX Weekly Chart
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Regardless of likely oversold bounces I maintain a bearish bias as long as:

Regarding sentiment, the last AAII bull ratio is moving in the right direction but it still has to drop further before reaching extreme readings.

AAII Bull Ratio Chart

Before moving on to analyze the shorter time frame I want to show the "picture" of the weekly momentum indicators:

SPX MACD Weekly Chart
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In the next SPX daily chart we have the detailed "map" where we can see:

SPX Daily Chart
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As I mentioned last Friday since the down leg off the October 5 lower high is not impulsive I have modified the overall count to a Double Zig Zag. Therefore if this count is correct price should be approaching the bottom of the wave (A) of the second Zig Zag.

Once the wave (A) is in place I expect a multi-day rebound wave (B) that should fade at the range 1445 - 1449 from where the "last" wave (C) down should complete the EWP.

SPX Daily Chart
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Friday's Doji is strengthening the scenario of an oversold bounce, but since we are dealing with a corrective down leg we have to be aware that the pattern can easily morph, in addition the weak bounce off Friday's lod may have shaped a bearish flag hence I would not rule out at least one more down leg before the assumed wave (A) could be in place.

But before analyzing the internal structure of the current down leg I have 2 reasons that are supporting a short-term bounce:

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NYSE McClellan Oscillator Chart

Lets now move on to analyze the internal structure of the down leg off the October 5 lower high = Assumed wave (A).

As I have mentioned above we are dealing with a corrective down leg, therefore we have to be aware that it can easily morph and extend lower, and there are several valid ways to label it.

My preferred count is a Zig Zag. This EWP can be considered complete with one more down leg provided price does not overlap above 1431.89 before a new low is established.

The wave (C) of the ZZ has an extension target in the range 1419-1409.

1422 could be a nice reversal spot.

SPX 15-Minute Chart
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In addition NDX could be on the verge of finishing an Ending Diagonal, hence the oversold bounce should be "around the corner."

NDX 15-Minute Chart
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Regarding the breadth indicators I want to highlight two issues:

NYSE Summation Index Chart

NYSE Advance/Decline Volume Chart

The same conclusion can be deduces form the Rydex Total Bull/Bear Assets. Here we can see that bull assets have decreased but there is no interest in betting against the market.

Rydex Bull/Bear Total Assets Chart

Lastly VIX.

Friday's Hammer is suggesting a bearish Monday the equity inidces.

I have already discussed the potential bullish set up (Double Bottom) so we have to see how it evolves on a daily basis, and if it agrees with a possible "oversold bounce" of the equity indices.

VIX daily Chart
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Next Tuesday I will not post the daily follow up.




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.

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