Weekly Technical Analysis
As a reminder:
- The Intermediate-trend is up (From the March 2009 lows)
Following the reassessment of the potential EWP from the October 2011 lows I am working with two potential options within the Double Zig Zag off the November 2008 low.
1. Price is unfolding the final wave (C) with an Ending Diagonal.
If this is the correct count then the assumed wave (II) of the ED in order to have the right look should bottom in the range of the 0.5 retracement = 1370 - 50 w ma = 1354.
Once the ED is done price will have completed the wave (X) off the November 2008 low.
2. From the October 2011 low price, with another DZZ is unfolding the wave (A) of the second Zig Zag.
If this is the correct count then the wave (B) could carry out a shallower pullback with a potential bottom in the range of the trend line support off the October 2011 lows and the 200 d ma = 1377.
Even if one of the two options is the correct one, as a matter of fact, beforehand it is impossible to have a preference.
Therefore I remain open minded until I have further evidence in order to make a judgment.
- The short-term trend is down (From the September 14 high)
In my opinion from the September 14 high price is unfolding a Double Zig Zag.
Since the down leg off the October 18 lower high is not impulsive then the DZZ cannot be considered over, therefore I expect at least one more down leg.
The assumed final down leg could bottom either at:
- The 0.382 retracement which coincides with the rising trend line off the October 2011 lows = 1395.
- In the range or the 200 d ma = 1374 - 0.618 retracement = 1346.
At the moment I have a preference for the second target zone, with a likely candidate in the range of the 200 d ma and the 0.5 retracement.
Now lets move on to the shorter time frame.
As I mentioned last Friday I have a short-term bullish bias. I am expecting an oversold bounce that I believe it will fail.
The main reasons behind my short-term bullish stance are:
- A completed count off the October 18 lower high. If the Ending Diagonal pans out then once bulls reclaim the 1422 resistance area I expect the oversold bounce to fail in the range 1434-1439.
- Positive divergence of the RSI and an oversold Stochastic that could cross the signal line.
- Next week the equity market may enjoy a strong bullish seasonality.
In my last weekend update I mentioned that sentiment, measured by the AAII Bull Ratio was approaching extreme bearish readings.
Today I add that the weekly stochastic of the Summation Index has entered the oversold zone.
Both readings should prevent a major drop of the equity indices.