SPX: Weekly Technical/Elliottwave Analysis
The week ended with a "large" Harami candlestick, which has caused short-term technical damage and casts doubts over a false breakout of the January's high.
In my humble opinion SPX remains vulnerable to more downside with a potential target (Weekly time frame) in the range:
- 1831 (10wma) - 1816 (20 wma)
But due to the fact that both up legs from the October and February lows are corrective this decline should be treated as a retracement prior to the final upswing that could conclude the entire advance from the 2009 low. (Ending Diagonal idea that I have been discussing in the weekly updates. If this is the correct pattern the current pullback should bottom in the lower range of the assumed target zone: 1816 - 1799).
Friday's Inverted Hammer, with the "proviso" that it is unknown the market reaction to Sunday's referendum in Crimea is suggesting that the first down leg of a potential Zig Zag down could be over. If this is the case, provided price recovers above the 20 dma = 1854, I would expect a multi-day rebound with a lower high in the range 1865 (10dma) - 1868 (Usually the equity market should rebound ahead of the FED meeting next Wednesday).
If instead next Monday we have a gap down, probably the next support located at 1834 will not hold and price will most likely enter the Support Zone 1 target box.
Reasons for a short-term bounce:
- Oversold 60 min momentum indicators and a small positive divergence of the RSI. The initial stage of an oversold bounce requires a bullish cross of the MACD
- Positive divergence of the NYSE Adv-Dec Line (Last Friday no lower low of this breadth indicator while SPX made a lower low)
- Positive divergence of the NYSE Adv-Dec Volume (Last Friday no lower low of this breadth indicator while SPX made a lower low)
- Positive Divergence of the McClellan Oscillator (Last Friday no lower low of this breadth indicator while SPX made a lower low). If an oversold bounce is confirmed the McClellan Oscillator should not reclaim the zero line
- CPCE since Wednesday is hovering around the upper Bollinger Band (Contrarian Indicator)
Elliott Wave wise, price with a wedge could be completing with a Double Zig Zag the assumed wave (A) of a larger Zig Zag down. If this is the case, provided bulls reclaim the resistance zone 1851-1854, the assumed wave (B) rebound should top in the range 1865 - 1867.
If instead next Monday we have a gap down then maybe we could make the case that price on Friday completed a Triangle wave (X) within a Triple Zig Zag off the March 7 high. The following thrust should unfold a Zig Zag down completing the corrective pattern and likely establishing the end of the correction. The theoretical equality extension target would be located at 1812.
If the wedge pans out the following rebound should establish a lower high for the following technical reasons:
- The McClellan Oscillator is not "extremely" oversold yet
- Nor the 10 dma of the NYSE Adv-Dec Volume has reached the oversold zone
Lastly regarding VIX lets see if the next buy signal is "triggered" with a weekly spike above the 200 wma (It has occurred five times since 2012). Hence going forward VIX should not lose the support located at 15.77.
The spike above the 200 wma is doable if the double bottom target is achieved:
Seasonality is bullish this coming week while the end of March is usually weak.