SPX: Follow Up of the Short Term EWP
This is just a brief follow up of the short term SPX's EWP, but as a reminder of the long term pattern (From the 2009 lows) price is tracing the wave (X) with a Double Zig Zag, and within this large countertrend wave, in my opinion price is either involved in unfolding the wave (A) of the second ZZ or one of two Ending Diagonal options of the last wave (C).
If the former is the correct pattern then price has not completed the corrective pattern from the September high, hence price should trace a Flat correction. If this is the case then the current corrective rally from the November lows is a wave (B) that must not substantially breach the September high. Once the assumed wave (B) is in place price will revisit the November lows from where it will kick off the final up leg of the wave (A) of (Y) of (X).
If the latter is the correct pattern then at the November low price has established a swing low and it is now involved in unfolding the first segment (wave A) of a Zig Zag within a wave (III) or a wave (V) of an Ending Diagonal that once it is complete, it should establish the end of the entire move from the 2009 lows, I am referring to a potential bearish wedge formation from the October 2011 low.
I will review the long-term pattern options in the next weekend update. Now what matters is the price action within the time frame from the September 14 high.
Based upon the above ideas, in the SPX daily chart below I have my preferred count for the current up leg from the November 16 low which calls for an incomplete Double Zig Zag.
If this count is correct yesterday's Spinning Top, which opened and closed above the upper Bollinger Band (Heads up) and followed a White Marubozu should have established the top of the wave (A) of the DZZ count, therefore this scenario calls for an imminent multi-day pullback with a target in the range 1443 - 1427, as I don't expect that bears will be able to reclaim the 20 dma. This pull back will be followed by the last wave (C) up.
This assumed final wave up will establish either the wave (B) of the Flat scenario (If the September high is not substantially breached) or it will belong to a leg of the Ending Diagonal options (Either the wave (III) or the wave (V)).
Gong forward, during next week, I will monitor SPY, since Wednesday's huge gap should not be closed by the pending wave (B) pullback, instead I expect a likely bottom in the range 143.77 - 143 (20dma).
Going back to SPX, in the 15 min chart below, I show the assumed truncated ED wave (W), which was fallowed by a corrective pullback that bottomed thanks to the "last minute" fiscal cliff agreement on December 31.
For the short-term, if the wave (A) is in place then today (which is NFP day) bears have to reclaim the immediate support at 1449 in order to achieve a deeper retracement, next week, so that the assumed wave (B) pullback might bottom in the range 1434 - 1424.
In the technical front we have negative divergence in the McClellan Oscillator:
While CPCE is getting too low:
Therefore we do have warnings of a potential pending pullback.
To conclude, although it is still premature to trust a strong reversal of the USD, it seems that so far, January has began with potential positive correlation of the USD with "strong" US economic data, hence today's NFP could be a test of this new theme.
Keep in mind that a strong USD should undermine the Risk On assets strengthening the scenario of a SPX wave (B) pullback.
Enjoy the weekend.