Weekly Technical Analysis
Despite Friday's impressive recovery how can I even think to have a bullish stance when the "trio" of swing trading indicators have a bearish cross over?
- MACD has a sell signal in force since November 6. In spite of Friday's frenzy bullish activity the Stochastic bearish cross has not been cancelled.
- The NYSE Summation Index has a bearish cross and its slope is clearly pointing south.
- The weekly Stochastic of the Nasdaq Summation Index has issued a sell signal. Usually a new buy signal will be issued once the stochastic drops below the Oversold line.
- SPX BPI has as well has a bearish cross and a failure to cancel it.
EW wise the good news is that the DOW is now probably aligned with the same Ending Diagonal pattern that I have been suggesting for SPX.
In addition here we also know the price level that will invalidate the pattern. Since the wave (III) cannot be larger than the wave (I), even if the wave (III) is not in place yet, it cannot exceed 15826.59.
Recall that if my preferred long-term count is correct the Ending Diagonal, if it pans out, it will conclude the Double Zig Zag from the March 2009 low opening the door to a multi-year retracement. (If the 200 dma does not hold)
In the case of SPX keep in mind that if the ED is the correct pattern the following wave (IV) will have to bottom below 1709.67.
I would not rule out that XLF is also forming an Ending Diagonal. In addition despite Friday's huge rally I tend to believe that the wave (III) is already in place, hence the current rebound is a wave (B) that will establish a lower high.
SPX short-term EWP
Due to the corrective internal structure of the decline off last Thursday's hod I rule out that price can establish a new ATH.
I am considering two potential patterns:
- From the October 30 high price is unfolding a DZZ. If this is the correct pattern, the up leg off last Friday's lod is the second wave (B), which should stall below 1774.50 Once the wave (B) is in place it will be followed by an impulsive or Ending Diagonal wave (C) down
- Price could be forming a Triangle wave (B), if the following pullback is corrective and price maintains the sequence of higher lows and lower highs.
I maintain the following ETF:
- Long SPXU stop SPX > 1776
- Long QID stop NDX > 3410
- Long FAZ stop XLF > 21.10