SPX: Are We Almost Done With The Downside?

By: TheWaveTrading | Sun, Apr 13, 2014
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Before analysing the Elliott Wave pattern lets review some technical indicators because in my opinion we are getting close to extreme readings that usually should favour an oversold bounce and even the resumption of the intermediate up trend with one more and probably the last new ATH which should conclude the corrective rally from the 2009 lows.

CBOE Options Equity Put/Call Ratio Chart

NYSE Advance-Decline Volume Daily Chart

NYSE McClellan Oscillator Daily Chart

NYSE Summation Index Weekly Chart

S&P500 Stocks above 50dma Chart

S&P500 Stocks above 10dma Chart

NYSE Arms Index Daily Chart

VIX:VXV Daily Chart

NYSE Advance-Decline Volume Chart

Lets now have a look at the VIX chart. It looks probable that it has formed a bullish falling wedge, which truncated last Wednesday. If it were wedge I would not rule out a move above the last lower high established on March 14 at 18.22. But Friday's Spinning Top with the real body of the candlestick above the upper Bollinger Band could trigger a buy equity signal if VIX closes below the Bollinger Band. In my opinion in addition it should drop back below the upper converging trend line in which case we could consider that the wedge has failed.

VIX Daily Chart
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Lets move on to the SPX charts.

Last week Shooting Star confirmed the failed-break out since the bottom of the trading range (March 14 low) did not hold and price plunged almost reaching the 27 wma, which stands at 1812. In this area price MUST establish a bottom in order not to endanger the intermediate up trend. The weekly candlestick per se is not inspiring a great confidence that the correction is over therefore next week bulls have to achieve a weekly Harami or a Piercing Line in order to attempt a "counter-attack".

SPX Weekly from June 2012 Chart
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In the following daily chart we can see that after last week selling bears have inflicted serious technical damage with the loss of the 100 dma. If next week the1815 are does not hold there is only thin air until the gap fill at 1799.84 which also coincides with the 0.618 retracement of the advance from the February 5 low to the April 4 high.

If instead bulls reclaim the 100 dma it would be the first necessary step to attempt to recycle the pattern back up. The next big hurdle will be to reclaim the 50 dma.

SPX Daily Chart
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Elliott Wave wise despite the bearish performance the internal structure of the selloff is corrective. So far we have a 3-wave down leg (Zig Zag; Blue labelling). In addition both the first and second down leg are corrective therefore we can rule out that price is involved in a major reversal pattern but we cannot exclude a larger correction (Double Zig Zag; Red labelling) if bulls fail to achieve a bottom, in which case the following rebound will most likely fail in the range 1839.57-1844.

If this is the correct short-term Elliott Wave pattern the larger Ending Diagonal idea will be invalidated and I will have to reassess the overall pattern.

Since the current down leg (assumed wave (C)) is not impulsive it MUST unfold an Ending Diagonal, therefore maybe we have two options:

  1. Last Friday with a small wedge price has concluded/almost concluded the wave (C). The following rebound will give us clues regarding if the correction is over or if price is unfolding a Double Zig Zag.

SPX 15-Minute Chart
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  1. An Ending Diagonal wave (C) is under construction in which case the following rebound should fail below 1835.07.

SPX 2-Hour Chart
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Next week I am on holiday. I will be back on April 21.

 


 

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.

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