SPX: Follow Up of the Short Term EWP
SPX has finally breached the pivot support at 1422. Price is no longer in a trading range and clearly now the trend within the corrective pattern from the September 14 high is clearly heading south.
It is a fact that given the internal structure of the move from the September high price is involved in carrying out a Fibonacci retracement of the up leg off the June 4 lows.
As I have mentioned several times once 1422 is breached the next potential bottoming area is located in the range of 1396 and the trend line support in force since the October 2011 lows. Given that the rising 200 d MA is standing just below the trend line I don't not rule out that price may want to test its solidity.
Having potential critical pivot prices in the radar screen where the correction could conclude is not enough. A multi-month bottom can only occur if:
- We have a complete EWP.
- Usually there is a final exhaustion move where bulls give up.
- Positive divergences.
- Extreme bearish sentiment.
We should not be too far away since:
- Sentiment is moving towards extreme readings (AAII Bull Ratio).
- NDX is already approaching the critical support at the 200 d MA (Here price has already reached the 0.5 retracement of the June's up leg). Regarding the potential bottoming box lets assume that it should occur in the range 2650 - 2609.
- DJIA has reached the Double Top target.
Going back to SPX in the daily chart below I highlight the 4 numbers that depending upon the technical indicators are the candidates for the bottom
Regarding the location of price within the EWP off the September 14 high if the DZZ count that I have been following is correct then price is now involved in unfolding the last wave (C) down. But we have a technical issue since the down leg in progress is not impulsive then if it is a wave (C) it has to unfold an Ending Diagonal.
In the 5 min chart below (which I posted on Twitter before the close), it can be clearly seen that the down leg in progress is not impulsive hence price should be completing the wave (I) of the assumed Ending Diagonal.
The Alt count: Within the Double Zig Zag option price is still unfolding the wave (A) of the second Zig Zag.
In the technical front:
- The McClellan Oscillator so far is maintaining the positive divergence.
- The RSI has erased its positive divergence, which indicates that strong down side action is in progress. (Keep in mind hat an important bottom 99% of the times occurs with a positive divergence).
- Stochastic is entering the oversold zone.
- MACD is crossing the zero line. (Being below the zero line does note bode well for an immediate price reversal).
Lets move on to the "fear index"
VIX is now clearly in a short term up trend. It has woken up with a delay but now we have higher highs/lows.
There is a potential Double Bottom target at 20.50.
Yesterday it closed with the daily bar (Shooting Star) completely above the upper Bollinger Band, hence the odds of a pull back are large but as long as the previous resistance now support at 17 is not breached the trend is up.
Also the RSI has no negative divergence yet hence I expect more fear going forward.
For today I expect a rebound of SPX (Odds are large) given:
- FOMC Day: It used to be an event risk.
- VIX: Potential short term bearish set up.
- NDX: Yesterday's doji.
- SPX: Eod print below the Bollinger Band.
- TRIN = 2.77.
- CPCE: Extreme high reading:
I am clueless regarding the target. Lets watch the range 1434-1444.
But keep in mind that it should be a selling opportunity.
If despite the above short term bullish reasons SPX fails to rebound then things could get really nasty for the bulls.
I don't have time now to post an updated chart but keep an eye also on the EUR & USD Index since without a bottom of the former and a top of the latter SPX down side pressure will not abate.