SPX: Follow Up of the Short Term EWP
Yesterday we had a "consolidative" pattern, which is not unusual after Wednesday's reaction off the 200 dma, but it does not suggest that the corrective pattern from the November 16 low is over.
EW wise bulls should have allowed a pullback in order to keep alive the initial impulsive up leg off last Wednesday's lod instead the initial rise has killed the impulsive "project" of a wave (C), therefore I modify the count from a Zig Zag to a Double Zig Zag, if this count is the correct one then price will unfold a Zig Zag from last Wednesday, then price should be now involved in finishing the wave (A).
Below in the 15 min chart I have the new preferred count:
Yes, I maintain the scenario that does not consider the November 16 low as the end of the corrective pattern from the September high, but I will maintain an open-minded approach in case we have a "dejavu" June's major bottom. Hence going forward, in addition to EW counting I will pay a close attention to breadth-momentum and sentiment readings.
A possible "turn window" could take place on December 7 (NFP) or December 12 (FOMC), but also sometimes during December a Christmas rally will most likely be in the cards. So caution is advisable.
Lets go back to my scenario.
The change of the EW count does not preclude the extension target of 1451 but in addition it can also give a less aggressive target measured as the extension of the assumed wave (A), which currently is 34.27 points
In the daily chart below we can see that bulls still have to reclaim the 50 dma = 1422.50 and the 0.618 retracement at 1424.38.
As a working assumption I establish two potential reversal areas:
- Range 1433 - Upper Bollinger Band
- Equality Target of the assumed wave (Y) = 1451.
Therefore the scenario, which so far prevails, is that of a lower high (A failure at the September high).
I remind that once price reaches a potential reversal zone it will have to be confirmed by an ending pattern + negative divergences.
And speaking of divergences, so far we only have one in the NYSE Adv-Dec volume, which keeps suggesting a defensive attitude but this daily divergence is not enough to consider a major reversal yet.
But the market is approaching overbought readings by both:
- Daily stochastic:
- McClellan Oscillator:
Therefore the odds of a pullback are increasing, maybe not today (bullish end of month?) but certainly for next week.
Also judging from the weekly candlestick, which most likely it will be either a Hanging Man or Spinning Top, favours a pullback for next week.
It will be interesting to see if bulls achieve an eow print above the 20 wma=1414.50.
Above the 20 wma the next resistance is at 1422.
Keep an eye on the USD Index since in addition to a likely 3-wave down leg (No impulsive action) price could be unfolding a bullish falling wedge (If 60 min RSI positive divergence is maintained and price does not break the lower trend line).
This pattern does not assure the end of the correction from the November 16 high (same date of SPX bottom) but if it plays out it should allow at least a strong countertrend bounce, which would be aligned with the scenario of the SPX wave (B) pullback.
Enjoy the weekend!!