Weekly Technical Analysis

By: TheWaveTrading | Sun, Oct 21, 2012
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Last Friday we finally got the confirmation that the corrective pattern in force since the September 14 high is not over.

Before proceeding with the weekly analysis I want to remind my stance regarding the location of price within the "bearish" wave (X), which is in progress since the November 2008:

1. From the June 4 low price is unfolding the final wave (C) with an Ending Diagonal. We have a potential extension target at 1614.

SPX Weekly Long Term Count Chart
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2. From the October 2011 low price is unfolding with another DZZ the wave (A) of the second ZZ.

SPX Weekly Long Term Count Double Zig Zag Count Chart
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What is a fact is that given the corrective internal structure of the pullback off the September 14 high we know that the intermediate up trend remains up. Hence we have to let price define which of the 2 potential options is the valid one. (Or show a different path).

Now lets move on to analyze the shorter time frame "state of affairs".

In the weekly chart below we can see that:

SPX Weekly Chart
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I maintain the DZZ as my preferred count for the current pullback off the September 14 high. If this count is correct then price is now involved in unfolding the final wave (c) of (y).

I have already mentioned that in my opinion we have 2 potential target areas for the assumed wave (c) down:

SPX Weekly Long Term Count Chart
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So far so good

A wave (C) can either unfold an impulsive sequence or an Ending Diagonal therefore as long as price does not break through the pivot support at 1422 we will not have enough information in order to have a confident internal count.

At the moment I can only make a wild guess that at Friday's lod price has completed:

a) The wave (3) of the wave (C) or of a larger impulsive sequence ?.

b) The wave (5) of a larger impulsive sequence?

c) Given that the first down leg is a questionable Leading Diagonal price could also be involved in unfolding the first down leg of an Ending Diagonal.

Therefore the short-term count that I have labeled in the 5 min chart below has to be taken with a grain of salt.

What I can say is that:

SPX 5-Minute Chart
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But with TRIN at 2.54 and an extreme high reading of CPCE the odds of a rebound are large.

CBOE Options Equity Put/Call Ratio

NDX will most likely play a major role in sentencing the length of the assumed SPX wave (C) down.

In the weekly chart below we can see that price is already approaching the trend line support in force since the October 2011 lows with an Inverted Hammer (Beware of the potential warning of a bottoming candlestick next week).

If the trend line is breached then we have a potential bottoming target in the range 2650 - 2585.

NDX Weekly Chart
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In the daily chart below we can see that on Friday price has reached the trend line support off the October 2011 lows with a Black Marubozu and an eod print below the Bollinger Band, therefore I would not rule out that next Monday we could have a small range body and even an attempt to achieve an oversold bounce.

If the trend line is finally breached then the target box for the wave (C) of (Y) should be located in the range 2660 - 2609.

NDX Daily Chart
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Next I want to show the daily chart of the USD Index since in my opinion strengthen overwhelmingly my intermediate bullish bias for the equity indices.

US Dollar Index Daily Chart
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Conclusion:

Now we have to pay close attention to sentiment and technical indicators.

Regarding sentiment, which is a contrarian indicator, we have the AAII Bull ratio approaching extreme bearish readings.

AAII Bull Ratio

In the technical front:

SPX Momentum Chart
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NYSE Summation Index

NYSE McClellan Oscillator

Lastly, finally VIX has made the expected move higher. On Friday it jumped 13.50% closing below the upper Bollinger Band at the September 26 peak, therefore it is still in a range.

It needs to decisively break above 17 in order to expect SPX to break down the pivot support at 1422.

Above 17 we have stiff resistance in the range of 17.88 (200 d MA) and 17.98 (September 5 gap down).

VIX Daily Chart
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Next week we have the FOMC on Wednesday, but I think it is now a non-risk event, while AAPL earning release on Thursday is probably the main risk event for the coming week.

 


 

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.

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.

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