SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Thu, Nov 1, 2012
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As I have discussed in my last weekend update:

"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:

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 = 1370."

SPX Daily Chart
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This scenario requires that price has already established the bottom of the wave (a) of the second Zig Zag which implies that price will carry out a multi-day rebound with a potential target in the range 1434-1438

Given the positive divergence of the McClellan Oscillator & the RSI and an oversold Stochastic, the assumption of an oversold rebound remains capable of being accomplished.

In addition we can make the case that price has completed the down leg off the October 18 peak with an Ending Diagonal provided that bulls reclaim the 1422 resistance area:

SPX 30-Minute Bullish Chart
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However, since price usually does not hesitate to carry out a strong countertrend reaction once a wedge is done, it is quite disappointing that price has failed to break above the 1422 pivot resistance.

Therefore we still don't have the confirmation that price has established a short-term bottom, and as long as price remains below 1422 the risk of further action to the downside remains elevated.

If the Ending Diagonal is aborted then price could be unfolding a bearish Triangle wave (B):

SPX 30-Minute Bearish Triangle Chart
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Conclusion:

 


 

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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