SPX: Follow Up of the Short Term EWP
Today is FED day.
Equity bulls have raised their confidence that Mr Bernanke will announce a new monthly Treasury acquisition program. Clearly yesterday strong performance with the break out above the December 3 peak at 1423.73 and above the 0,618 retracement of the down leg off the September 14 high must have something to do with it.
The rejection at the November 6 peak = 1433.38 has not inflicted any technical damage therefore at yesterday's eod there is no assurance that the corrective EWP from the November 14 low is complete.
In addition since the current up leg, which began on December 5, is not impulsive I rule out that price is approaching the top of the corrective move from the November lows.
I am sure there must be several different ways to label this overlapping rally. In my opinion price so far has unfolded a 9-wave move, hence if price is unfolding a Triple Zig Zag we need an 11-wave up leg.
In the SPX 60 min chart below we can see that price yesterday stalled at the November 2 peak = 1434.27.
I use this chart to show also that there is a chance that if today price does not break above yesterday's hod and instead begins a multi day pullback remaining above the 1405 area could be shaping the right shoulder of an Inverted H&S that would most likely carry price above the September top during the month of January.
Keep in mind that price is unfolding a corrective move that can easily morph into bullish patterns that can allow much higher prices provided breadth indicators don't deteriorate.
This is not my preferred scenario but I cannot rule it out since as I mentioned in my last update of the long term EWP price could be involve in the early stages of either a wave (V) or wave (III) of an Ending Diagonal.
So far I maintain the scenario that assumes that the correction off the September 14 high is not over yet, hence price is now unfolding a countertrend wave (B) that is expected to establish a lower high (The Flat scenario).
The good news is that today I can remove a couple of short term patterns so now I have two options on my working desk: one is bearish the other one could morph into a larger Zig Zag.
- Bearish Option: An Ending Diagonal could complete a Zig Zag off the November lows that could establish the top of assumed the bearish wave (B)
The ED is still a "project" since its wave (IV) has to overlap below the peak of the wave (I) at 1423.73 + the following wave (IV) pullback has to bottom at/above the 50 dma = 1416.42.
In addition if the wave (III) is not in place yet a move above 1436.53 would kill this scenario.
Also breadth so far does not suggest the price is "ready" for a major reversal. (I don't show it here but the RSI of the Summation index has not entered yet the overbought territory)
- Bullish Option: Price is unfolding a complex Triple Zig Zag which still needs a wave (B) pullback followed by the last impulsive or ED wave (Z)
If this count is correct then the assumed wave (B) pullback will probably revisit the 50 dma = 1416.42 but it should not breach the rising trend line support.
There is still the reasonable doubt that at yesterday's hod the wave (A) has not been established yet.
To make things even more complex, technically as I mentioned above, we cannot rule out that this TZZ can establish the wave (A) of a larger Zig Zag. Hence going forward as long as bears do not reclaim the 200 dma which today stands at 1387 I will remain open minded.
In the SPX daily chart below I highlight the critical price zones.
Above yesterday's eod if today bulls are able, with the help from the FED, to break above the trend line resistance then there is only thin air until the upper BB and the 0.786 retracement at 1446.39.
Below yesterday's hod bulls have plenty of supports beginning with the 50 d ma = 1426.25.
Only if bears reclaim the 20 d ma = 1398.45 the uptrend could be endangered.
In the technical front I highlight the following:
- The Daily RSI has no negative divergence hence I am confident that the next pullback will be bought.
- The Stochastic is overbought hence it is more likely that price is approaching some type of a top rather then the kick off of a major up leg.
- The McClellan Oscillator is showing a negative divergence strengthening the idea that a pullback is due
The EUR might play a major role in defining the next directional move since last week impulsive decline is being followed by a large but corrective up leg (Maybe a TZZ) that could be correcting the previous impulsive decline. Therefore EW wise at least one more large down leg should be expected which should put pressure on the equity and commodity markets.
Going forward due to the approaching holidays I will have less time to devote to publishing daily updates, hence posting will be irregular.
Well I guess today it will be an interesting trading day.