SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Wed, Nov 7, 2012
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Based on the Technical & Elliot reasons I have been discussing I don't trust this move in risk assets and I expect, once the US presidential election euphoria fades, the resumption of at least one more down leg for SPX and for the major stock indices since as you know in my opinion the EWP off the September 14 high is not over yet.

As I mentioned yesterday, the failure of the bears to achieve an impulsive decline off Friday's hod is allowing a larger short-term countertrend corrective pattern, which given the internal structure is doomed to fail.

Yesterday's before the close I posted on Twitter two potential options that should soon resolve this move with either a Triangle or an Ending Diagonal:

SPX 30-Minute Chart
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In the daily chart below we can see that if my preferred count is the correct one, price is involved in unfolding an "oversold" bounce wave (B).

SPX Daily Chart
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Bulls in order to prolong the inevitable bearish reversal have to reclaim the horizontal resistance in the area of 1431 and achieve to break above the 50 d ma = 1435.

Given the strength of breadth indicators, I think that bulls should be able to squeeze price above the 50 d ma.

Since the "true" pattern is not clear yet, if bulls reclaim the 50 d ma I will establish 2 potential target zones if bulls reclaim the 50 d ma:

  1. The inner space between the 50 d ma & the 0.618 retracement = 1435 - 1441
  2. The inner space between the 0.618 retracement & a trend line resistance that connects the two October lower highs = 1441 - 1455

I don't expect a move to the outer space!

As I mentioned bulls are enjoying, so far, a strong breadth.

The McClellan Oscillators has breached a trend line resistance and reclaimed the zero line. We can see higher lows/highs of the October 24 low. Therefore I suspect that we should wait for a slow down of the bullish inertia in order to look for a reversal set up (Negative divergence).

Under the scenario that I am following NYMO should not breach its October 17 peak.

NYSE McClellan Oscillator Chart

The attention has to be addressed to the daily RSI since it is already back testing the 50 line.

My count will be jeopardized if the RSI breaks above the trend line resistance in force since the September 14 high.

SPX Momentum Chart
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Since negative divergence is synonymous of bullish exhaustion going forward we can detect early warnings from the NYSE Adv-Dec Volume readings.

NYSE Advance/Decline Volume Chart

I again suggest monitoring the sickly AAPL since Monday's bullish Harami Cross has not acted as a springboard for a decent oversold bounce. The 200 d ma remains for the third consecutive day above.

AAPL Daily Chart
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Investors could get greedy but VIX does not lie. Barring an unexpected move below its rising trend line, in my opinion, the pattern clearly indicates that we have not seen yet the top of the "fear" index.

VIX daily Chart
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So I am patiently waiting for the correct R/R bearish set up.

 


 

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.

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My analysis is based upon traditional Technical Analysis, Elliot Wave guidelines and investor sentiment.

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