Weekly Technical Analysis
In my last weekly update on December 22 I suggested that a likely bullish signal cross of the weekly stochastic of the NYSE Summation Index would trigger a multi-week buy signal and consequently the next sell signal would be issued once the weekly Stochastic enters the overbought territory.
The bullish signal cross was issued the following week and now we have the weekly Stochastic in overbought territory hence going forward we have to maintain a caution stance since the probability of a bearish signal cross is large. When a bearish signal cross is triggered it will open the door to a multi-week retracement.
In addition the daily RSI of the NYSE Summation Index is as well overbought and the histogram of the MACD is displaying a negative divergence. This is also a good indicator that is warning that price is approaching a top.
Weekly Momentum is also warning that SPX is vulnerable to succumb. The RSI is displaying a negative divergence while the stochastic is dangerously close to issue a bearish signal cross.
If one of the two long-term counts that I am working with is correct the pending top will kick off a retracement only of the advance from the October 2013 low either forming an Ending Diagonal or a Zig Zag.
a) Ending Diagonal Option: Price is involved in the late stages of the wave (I) of an Ending Diagonal which will conclude a Double Zig Zag from the 2009 lows
b) Zig Zag Option: Price is involved in the late stages of the wave (A) of a Zig Zag which conclude a Triple Zig Zag from the 2009 lows
Therefore I don't expect a major reversal since, Elliott Wave wise, the advance off the October 9 low cannot be counted as impulsive therefore a major top cannot be established yet.
In my humble opinion price from the October 9 low is unfolding a Double Zig Zag, hence we are now in the last wave (C) up.
The assumed wave (C) has to unfold either an impulsive advance (If it is impulsive the wave II may have been completed last Friday) or an Ending Diagonal.
The theoretical extension target of the wave (C) is located in the range 1866 - 1897.
Once the wave (C) is in place I expect a multi week pullback with a potential target in the range of the rising 100 dma and the 200 dma (1755 - 1695).
If instead of a 5-wave move from last Monday's lod, price advance with a 3-wave up leg then the most likely Elliott Wave pattern would be an Ending Diagonal, in which case we would be in the wave (III), while the overall pattern from the October 9 low will be a Zig Zag.
So even if it is not obvious yet how will price conclude the pattern from the October 9 low what we know is that due to the corrective pullback from last Wednesday's hod the trend remains clearly up.
It is possible that last Friday with a thrust following a Triangle wave (B) price has completed a Zig Zag (The measured target was hit). If this is the case the assumed wave (3) up should be larger than the preceding wave (1) hence it should top above 1870.55
If instead a correction is still underway bulls have to defend the 0.618 retracement located at 1829 in order to prevent technical damage jeopardizing the bullish setup.
If SPX has concluded the corrective pattern on Friday then VIX should not breach the 20 dma = 13, if this is the case then maybe it is forming a bullish falling wedge in "harmony" with SPX unfinished business to the upside.