Weekly Technical Analysis

By: TheWaveTrading | Sun, Feb 3, 2013
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My short-term scenario has proven to be wishful thinking. I was looking for a potential Zig Zag down instead bulls have once again aborted a pullback that in my opinion has been delayed but not removed from a pending outcome.

Regarding the long-term count I maintain the scenario of a potential Ending Diagonal. If it pan out it will complete the Double Zig Zag wave (X) off the March 2009 low establishing a major top.

SPX Weekly Double Zig Zag Ending Diagonal Chart
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But instead of a expecting a larger subdivision of the wave (III) maybe price is approaching the end of this wave.

If this is the case then once the wave (III) is in place the next down leg, in order to be considered the wave (IV) of the Ending Diagonal, it will have to overlap below the peak of the wave (I).

The potential target for the wave (IV) could located in the range 1463.76 - 1435.50.

SPX Weekly Double Zig Zag Ending Chart
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Where could be located the assumed wave (III) top?

If we look at the monthly chart we have a potential range 1517.68 - 1530.

SPX Weekly Monthly Chart
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I cut down the target of the current up leg and consequently I expect a large pullback instead of a "mild "one due to the following reasons:

Sentiment is a contrarian indicator. It is useful in signalling pending corrections/trend reversal but it is not a timing indicator, therefore it has to be gauged in conjunction with breadth and momentum indicators.

a) AAII Bull Ratio:

AAII Bull Ratio Chart

b) NAAIM Survey of Manager Sentiment

NAAIM Survey Chart

a) Summation Index weekly: Usually when the weekly stochastic issues a sell signal price begins a multi-week/month correction.

NYSE Weekly Summation Index Chart

b) NYSE % of stocks above the 50 dma. On January 22 this ratio reached 89.54%, the second highest reading during the last three years. In addition we can see that it is now showing a negative divergence.

NYSE Percent of Stocks Above 50-Day Moving Average

In addition if the Dow is unfolding the same ending pattern, then the wave (III) cannot exceed above 14089.64 therefore there is not much more upside left in order to maintain valid this option.

DOW Weekly Chart
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If this scenario pan out then a multi-week correction should allow the appearance of negative divergence in the weekly RSI in the last up leg of the ED, which will substantially increase the odds of a major top. (By the way the weekly RSI is already showing a negative divergence vs the September peak).

SPX Weekly Momentum Chart
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Regarding the short-term price action I have given up to attempt to count the up leg from the November 16 low for obvious reasons. Instead I am watching the price behaviour inside a channel that has the upper trend line which on Monday will be located at 1518,40 +/- and rises 2,25 points each day. While the rising 10 d ma defines the lower trend line, which on Friday was located at 1499.

Therefore either I detect a reversal pattern at the upper trend line or I wait for the loss of the 10dma in order to increase the confidence that price will begin a meaningful correction, in which case if the scenario of the Ending Diagonal is correct the assumed wave (IV) could bottom in the range 1464 - 1434.

SPX Daily Chart
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Just as a guessing exercise below I show 3 potentials counts:

SPX 5-Minute Chart
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SPX 5-Minute Triangle Chart
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SPX 30-Minute Chart
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Even though the price pattern remains difficult to decode, daily momentums is strongly suggesting that if a top in not already in place it should be around the corner (of course if Ben and friends don't fix this issue):

SPX Momentum Chart
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Also VIX, which is once again diverging from SPX, in my opinion, is not so bullish friendly.

Here we could have either a higher low or a potential Double Bottom. If a Double bottom the target is at 16.60, but as nobody in this planet thinks that the equity market can drop I would not rule out a move towards the 200 dma = 17.19

In addition watch the Bollinger Bands, they are getting tighter, and it usually auspicate a large move.

VIX Daily Chart
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Lastly and this has also to do with conspiracy theories, on Friday we had a "strange plunge of TLT, which closed with a drop of 1.52% TLT is a widely watched etf (20+ Year Trsy Bond Ishares).

Lately there is a lot of talking in the media regarding the Bond market "bubble" as it seems that THEY desperately need a rotation of funds out the bonds into the equity market to keep the "creeper" equity uptrend alive.

But I say, would you sell your bond allocation and buy the Dow at the all time high?

Instead of watching the TLT that probably can be manipulated I prefer to follow the US 10 year Treasury Note Future.

Here the corrective EWP from the July top is most likely not over, but if the count that I am working with is correct (Double Zig Zag) price could be on the verge of beginning a large wave (B) rebound.

ZN daily Double Zig Zag Chart
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Regarding TWT swing picks I remain "trapped" long of SPXU with a loss of 2%. Next Monday I will decide what to do with this position.

 


 

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.

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