Weekly Technical Analysis
SPX ended the week with a Hanging Man. This candlestick is warning that price may begin next week a pullback. The pullback will be confirmed once price breaches 1451.64.
Once the pullback is confirmed I don't know if it is going to be a shallow one with a target at 1444-1438 or a larger one with a target in the range 1426 - 1398.
Reminder of my two preferred long-term counts discussed last Sunday:
"1. From the monthly chart above we can see that from the October 2011 low price could be unfolding a wedge. In this case then price with an Ending Diagonal would be on the verge of finishing the wave (A) of the second Zig Zag by unfolding from the November low the wave (V) of the Ending Diagonal."
"2. From the June lows price is unfolding with an Ending Diagonal the last wave (Y). If this is the correct count price is now involved is tracing the wave (III) of the assumed Ending Diagonal. This pattern will complete the wave (X) countertrend rally from the 2009 lows."
The issue is that even though in an Ending Diagonal usually the waves (I), (III) and (V) subdivide in a Zig Zag, hence price should be now involved in the final stages of the wave (A) of the Zig Zag, the wave (A) can also extend higher with a Double ZZ.
So far I was following the Double ZZ option (Blue count) but I should not rule out that instead price is on the verge of finishing the wave (A) with a Zig Zag (Black count) if a small wedge pan out from the January 4 peak.
The main difference between the 2 corrective counts is that in the former the overdue pullback will be shallow, probably it will not breach the 20 dma = 1441 (worst case scenario the trend line in force since the November low will come into play) while in the latter price will begin a relative large pullback with a potential target in the range of the 50d = 1417 - 1398
In the SPX daily chart below I show the two short-term scenarios:
As I have discussed last week momentum and breadth indicators are suggesting that a pullback is due:
- Daily RSI with negative divergence and an overbought Stochastic:
- McClellan Oscillator with negative divergence:
- The weekly stochastic of the Summation Index could trigger a multi week pullback if the "pendulum sequence" from overbought to oversold is carried out.