SPX: Weekly Technical Analysis

By: TheWaveTrading | Sun, Feb 9, 2014
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From the November 2012 low, fourth time, the 27-week ma has acted as support preventing a larger decline.

As well the weekly hammer with the low of the tail at the 0.5 retracement of the advance from the October low is suggesting that at least the corrective down leg from the December 31 peak is over.

Even though it is premature to conclude that the correction is over (price could still be unfolding a Zig Zag hence this advance would be the wave B which will establish a lower high), if bulls are able to overcome the hurdle located in the range 1813.50-1815.55 then odds would favour the resumption of the intermediate up trend.

SPX Weekly Chart
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We have several bullish "signs" that are suggesting that price has established a new swing low:

SPX Percent of Stocks Aboce 50-DMA Chart

NYSE Advance/Decline Volume Chart

NYSE McClellan Oscillator Daily Chart

NYSE Advance-Decline Line Daily Chart

VIX Weekly Chart
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VIX Term Structure Chart

So we have bottom signals but no guarantee yet that the up trend has resumed.

As a matter of fact weekly momentum remains a major concern:

SPX Weekly Momentum Chart
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And the weekly Stochastic of the Summation Index after issuing a sell signal in January, it has not reached yet the oversold zone where usually it recycles back up.

NYSE Summation Index Weekly Chart

Since we are still faced with uncertainties I will adopt a day-by-day strategy.

If the assumption that price has concluded a corrective down leg off the December 31 peak is correct (Double Zig Zag) it is reasonable to expect at least a 3-wave up leg from the February 5 low therefore eventually we should see a pullback followed by another up leg:

SPX 60-Minute Double Zig Zag Chart
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If the first up leg has ended at Friday's hod and the following corrective pullback finds a bottom in the range 1777 - 1768 then we would have the best bullish scenario with a potential Inverted Head & Shoulder. If this pattern pans out the theoretical target is located at 1859 (New ATH)

SPX 60-Minute Chart
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If instead next Monday we have more follow through to the upside this up leg should top in the range 1811 (200 hma) - 1815. 50 (Horizontal resistance)

The high reading of CPCE may favour it.

CBOE Options Equity Put/Call Ratio Daily Chart

Once this up leg is in place if the following pullback is corrective it will give us clues regarding the scenario of the new "Swing low" since given the size of the first up leg it would be reasonable to expect a new ATH with the assumed second up leg.

60 min. momentum is stretched (The absence of negative divergence of the RSI is suggesting that odds favour the scenario of at least a 3-wave up leg).

SPX 60-Minute Momentum Chart
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In the daily chart we can see that price has retraced 50% of the corrective decline from the December 31 high. In order to increase the odds that correction is over Friday's gap at 1773.43 must not be closed and bulls must overcome the 50 dma, which stands at 1809.

SPX Daily Chart
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Lastly but not less important we will have to monitor USDJPY since a weak Yen has been one of the main drivers of higher stock markets. Even if the down leg from the January 2 high is corrective as long as this pair does not recover above 103.64 the risk is tilted to the down side. If the correlation is maintained another down leg of this pair will most likely kill the SPX bullish scenario.

USD/JPY Daily Chart
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Author: 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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