Technical/Elliottwave Analysis of SPX

By: TheWaveTrading | Sun, Mar 9, 2014
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I have been discussing that due to the fact that both up legs from the October and February lows are corrective there is a chance that price could be forming an Ending Diagonal.

SPX Daily Ending Diagonal Chart
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If the Ending Diagonal idea pans out it could complete a Double Zig Zag from the March 2009 low. Once the 10-mma is breached it would open the door to a Major Reversal. If this were the case I would expect at least a retest of the October 2007-March 2000 highs.

SPX Monthly Chart
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If the monthly RSI negative divergence is not erased we will have the confirmation of a major top when:

SPX Monthly Momentum Chart
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Even though the two corrective up legs from the October low are suggesting that an Ending Diagonal could be developing two requirements must be fulfilled:

  1. The assumed wave (III) must top below 1940.89
  2. The following wave (IV) has to unfold a corrective pullback which has to overlap the wave (I) peak at 1849.44 and continue a deeper retracement below the 50 dma, ideally it should bottom in the range 1815 - 1802

While the first requirement is probable the second one is unknown and it will need a catalyst.

Major Reason for a pending top:

NYSE Summation Index Daily Chart Chart

NYSE Summation Index Weekly Chart

More Compelling Reasons:

NYSE McClellan Oscillator Daily Chart

NYSE Advance-Decline Volume Index Chart

Both breadth indicators are suggesting that bulls no longer have the buying pressure needed to extend price much higher.

In the following daily chart we could make the case that price from the February 5 low is forming a bearish rising wedge, maybe this is the argument that could allow a deep retracement, since usually when a wedge is completed the following move in the opposite direction is usually sharp, but there is no guarantee of a large retracement with so many potential supports where dip buyers can step in and abort the assumed wave (IV) of the Ending Diagonal Project. (I can list at least 6 support layers starting with the 10 dma, which stands at 1860 and ending with the 50 dma which stands at 1827).

The three consecutive toppish candlesticks are suggesting that bulls are losing upside momentum.

SPX Daily Chart
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Regarding the Elliott Wave count of the advance form the February 5 low you can easily see that price has displayed a difficult pattern to correctly interpret. In my opinion a Triple Zig Zag is a good option but I believe that there is no evidence of a reversal yet (First indication of a potential top if price loses the 1868 area).

SPX 60-Minutes Triple Zig Zag Chart
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As a matter of fact IWM is displaying a potential bullish flag, which is suggesting that price has one more pending up leg, which should conclude a Double Zig Zag from the February 5 low. It would be odd to see IWM rallying and SPX tanking.

IWM 60-Minute Chart
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Therefore maybe SPX, if 1872.92 were not breached, it could be forming an Ending Diagonal.

SPX 30-Minute Triple Zig Zag Ending Diagonal Chart
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In the same way NDX, although pending just one more up leg, could also conclude the advance from the February 5 low with a rising wedge.

NDX 60-Minute Chart
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Lastly I wanted to show you the daily chart of VIX since despite the fact that there is no clear reversal pattern yet (As long as it remains below the 200 dma = 14.68) the Bollinger Bands are getting tighter which usually is a sign that a large move is coming.

VIX Daily Chart
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Author: TheWaveTrading


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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.

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