Weekly Technical Analysis
I EXPECT A PULLBACK
Bulls are pushing through the trend line of the assumed Ending Diagonal. If next week price is not rejected at the weekly upper Bollinger Band the discussed Ending Diagonal will be most likely invalidated.
If the Ending Diagonal is Invalidated the "sky is the limit".
In the hypothetical case that the Ending Diagonal is still in effect bears have to break through the previous resistance now support located at 1729.86. If this is the case the "white space" underneath the horizontal support may extend the pullback towards the 3 wma, which stands at 1713.
The two Ending Diagonal options are still viable?
According to the corrective internal structure of the overall pattern in my opinion the answer is yes.
- Ending Diagonal (Preferred): Price should have concluded the wave (A) of (III).
- Expanded Ending Diagonal (Alt): Price should have concluded the wave (A) of (V).
As well the current advance off the October 9 low cannot be counted as impulsive since it is a 7-wave up leg (Double Zig Zag).
If the wave (Y) were in place then it would be reasonable to expect at least a 0.382 retracement, which is located at 1707.52.
Four additional features are suggesting that the up leg off the October 9 has run its course:
- Since last Wednesday NYUD is displaying negative divergence.
- CPCE is extremely low (Contrarian Indicator):
- The McClellan Oscillator has reached the upper Bollinger Band, often a mean reversion to the mid of the band follow suit.
- VIX ended on Friday with a Doji candlestick. Clearly it is premature to consider that VIX has established a sustainable bottom, but given the 38% drop off the October 9 peak, if 12.52 holds, a countertrend bounce towards the range of the 200 dma = 14.40 / last Thursday's gap fill = 14.71 seems probable.
In the 60 min chart we can discern an Inverted H&S (If 12.89 is not breached). The pattern has a target at the mentioned gap fill = 14.71 If this gap is closed the next resistance is located at 15.50.
Going back to the Ending Diagonal scenario, the Summation Index has issued a new buy signal, despite is it is displaying a triple negative divergence, the next sell signal will most likely be issued once the RSI enters the overbought zone, which could coincide with the wave (V) of the Ending Diagonal option.
Lastly the Dow keeps lagging behind; obviously it is unfolding a different pattern. In my last weekly update I suggested a potential Triangle. If this is the correct pattern the wave (D) of the Triangle could be in sync with the wave (III) of the ED of SPX.
Next week seasonality is negative.