Weekly Technical Analysis
THE INTERMEDIATE UP TREND HAS BEEN REACTIVATED
SPX achieved a surprising bullish week. The white large Hallow candlestick (Price is back above both the 20 wma and the 10 wma) is suggesting that the scenario of a downward larger correction off the August high has been invalidated. If next week the 3 wma crosses above the 5 wma it will definitely confirm that a new swing low was established at the August 28 lod.
Price can either continue the advance towards the August peak or it could maybe at the end of the week begin a "relief" pullback with a potential target at the 10 wma = 1676.
Therefore now the most probable scenario is that price has resumed the intermediate up trend, as long as the 10 wma (Weekly print) is not breached again.
Since so far we have a double divergence of the weekly RSI and the MACD in addition it has triggered a bearish cross at the beginning of August, we should not rule out that price could be involved in the late stages of the corrective pattern that has unfolded from the 2009 lows.
If this is the case an Ending Diagonal could be a possible outcome, in which case we are now in the wave (III) of the ED.
Since the EWP from the August 28 low is corrective, it would fit with wedge option, as price would be now unfolding the wave (A) of (III).
Regardless of the potential wedge option, going forward, the probability that on August 28 the intermediate up trend has been resumed has substantially increased. If this is the case in the next pullback the 50 d ma which today stands at 1672.20 should not be breached.
Unless the buy signal issued by the weekly Stochastic of the Summation Index fails (It occurred on April 2012) it is probable that the Stochastic will reach the overbought zone before a new sell signal will be triggered.
The same bullish argument can be seen in the daily chart of the Summation Index:
When the RSI is oversold and the Summation index issues a buy signal (By crossing above its 10 dma), the next sell signal is usually triggered when the RSI enters the overbought zone. (Usually the RSI can remain overbought for an extended period of time)
Despite bulls have regained the upper hand, SPX will soon become vulnerable for a pullback since further strength will push the McClellan Oscillator into overbought territory (And we cannot rule out a negative divergence which at the moment was visible on Friday).
Also the NYSE 10 dma of Adv-Dec Volume will soon reach the overbought line.
Two additional arguments should also weight in favour of a pullback probably at the end of the week or at the beginning of next week. (When both the FOMC and quarterly OPEX are out of the way)
- Retail Investors are switching to the bullish side (Though not an extreme sentiment yet)
- The 10 dma of the Equity Put/Call ratio is too low. Usually extreme low readings of CPCE occur when the market is establishing a top.
This morning global equity markets are celebrating the withdrawal of Mr Summers from the FED chairman nomination. ES Globex has opened with a large gap and so far it is consolidating above the August high.
It will be very interesting to see if today SPX achieves a new ATH (With negative divergences?) and how it will behave until next Wednesday's FOMC policy release.
(On Friday I have been stopped out on my long VXX at breakeven, obviously the potential IHS did not panned out)