SPX: The Corrective Pattern Remains Unsolved

By: TheWaveTrading | Sun, Mar 30, 2014
Print Email

A Diverging Market

If all things were equal as we can see in the weekly chart of SPX below there would be no indication whatsoever of trouble ahead. The trend from the November 2012 low is clearly up. The three candlesticks following the March 7 peak (Reversal of Reversal of Reversal) are suggesting that without a lower low (Below 1839.57) odds favour that price is forming a continuation pattern.

SPX Weekly Chart
Larger Image

However the US market is fractured since SPX, DOW, SMH, XLE, XLP and OIH have not established a lower low (XLE and OIH have established new highs) while we have seen serious weakness in IBB which has breached its February low, XLY and NDX, on Thursday they both reached the 0.618 retracement, while IWM has tested the 0.5 retracement. All these sectors have lost the 50 dma.

In the case of the weekly chart of NDX we can see that price has bounced off the 20 wma and the December peak. The weekly candlestick does not give much confidence that the decline is over. If this support does not hold there is not any substantial support that would deter a drop towards the February lows.

NDX Weekly Chart
Larger Image

However the daily Stochastic and RSI (5) are oversold hence odds should favour a bounce.

NDX Daily Momentum Chart
Larger Image

If an oversold bounce is mustered it should not breach the range of the 50 dma - 10 dma, while if despite the oversold momentum indicators Thursday's lod does not hold then price could fill the gap at 3497.60 (Almost 7% drop from Friday's eod print). If this is the case SPX should not be able to maintain the sideways pattern.

NDX Daily Chart
Larger Image

SPX remains stuck in a trading range but there is a latent risk of a Double Top if the March 14 low at 1839.57 is breached.

So far within the trading range dips are bought and rips are sold (On Friday bulls failed to reclaim the 20 dma).

SPX Daily Chart
Larger Image

So we are faced with uncertainties but maybe an Elliott Wave analysis of the pattern so far developed could give us clues.

It is an unquestionable fact that the pattern is corrective therefore it should not endanger the intermediate up trend. The unresolved issue is if price will unfold a Zig Zag (Downward correction) or a Triangle (Sideways correction).

Requirement: Maintain the impulsive sequence hence next Monday price MUST not breach Friday's hod at 1866.63 and in the next down leg price MUST establish a new lower low. If we are in the wave (III) of (3) it has to establish a bottom below the 1 x 1 extension target (Below 1833).

The bearish cross of the hourly 50 ma below the 200 ma is giving this option an edge.

This option will be busted if bulls are able to extend the rebound off last Thursday's lod above 1866.63.

SPX 60-Minute Chart
Larger Image

SPX 60-Minute Triangle Chart
Larger Image

Breadth could spoil the Zig Zag option:

NYSE McClallen Oscillator Daily Chart

NYSE Adnavce-Decline Line Daily Chart

CONCLUSION:

Opting to remain on the sidelines until we see an end of the erratic sessions might be a sound decision.

 


 

TheWaveTrading

Author: TheWaveTrading

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.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2014 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/