SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Thu, Jan 24, 2013
Print Email

During last week negative short-term breadth indicators (McClellan Oscillator) and an overbought momentum were suggesting that the odds of a pullback were increasing. But price negated a "healthy" pause as buyers overwhelmed the few bears left in the market.

Today, in my opinion, we have to be on guard for an overdue correction since the equity market is very vulnerable. In addition to overbought readings we now have "yellow flags" coming from risk on /risk off indicators. There tons of indicators that can be monitored but in my opinion two simple ones, TLT and VIX are suggesting that the switch of Risk on might be turned off temporarily.

Regarding TLT I don't have much more to say (The idea has been discussed recently). The short-term scenario is straightforward, since price should unfold a countertrend rebound (Probably a Zig Zag).

Usually an oversold rebound of the Bonds should coincide with an overbought pullback of the equity market:

TLT Daily Chart
Larger Image

In the mean time VIX could be establishing a short-term bottom with a Double Bottom pattern. If the DB is confirmed (Eod print above 13.32) then I would expect a quick move towards the 20 d ma = 15.03.

VIX Daily Chart
Larger Image

Unfortunately SPX short-term pattern remains a mess. I don't see yet an ending pattern so I would like to see eod weakness and a move at least below yesterday's lod at 1489.90 in order to gain confidence that the up leg from the December 31 low is finally complete.

Yesterday we had another extreme eod print of Tick = 1022 (buying exhaustion?).

As you now I have been suggesting that price should be on the verge of completing the wave (a) of the second Zig Zag from the November lows.

Therefore if my scenario is correct price will unfold a corrective pullback retracing a portion of the up leg off the Dec 31 low.

Lets establish two target boxes:

The awaited pullback could last a couple of weeks.

But in order to even have bearish thoughts bears have to reclaim the previous break out level of 1474.51.

SPX Daily Chart
Larger Image

In the mean time the mentioned trend line resistance is only a few points higher = 1500 - 1505 and it would be a "sweat spot" for a reversal.

SPX Trendline Daily Chart
Larger Image

Today I will pay close attention to NDX since not only because we are having a huge selloff of AAPL but also because yesterday's candlestick is a bearish Spinning Top, which is suggesting a potential top.

Here we have yesterday's gap at 2746.19 as the line in the sand that could allow one more up leg within a bearish rising wedge (Yesterday I posted the idea on Stocktwits/Twitter) or confirm a top if it is closed by eod.

If I see reversal pattern I might go long $QID.

NDX Daily Chart
Larger Image

 


 

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.

My main focus will be the equity market with SPX being the leader but I will also follow US equity sectors, major European indices, fixed income, currencies and commodities markets.

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

My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on the long and short side and mainly with leveraged ones (2 x & 3 x).

The advantage of ETF investments is that it allows getting involved in equity indices & sectors, currencies, fixed income, commodities etc.

Therefore the main purpose of TWT will be to establish investment strategies regardless if the market is in an up trend or in a down trend, leveraging the chosen scenario while managing the risk by establishing protective stop losses.

Hence I will always define the risk, I will try to let winners run the wave and I will cut the losses if my strategy is wrong.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2014 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/