SP500: High Alert - A Death Blow is Feasible

By: TheWaveTrading | Sun, Jun 7, 2015
Print Email

60 minute time frame:

Without a catalyst and a breadth thrust the benefit of the doubt favours the Bears.

SPX 60-Minute Chart
Larger Image

Even though it seems probable that Bears have an edge VIX ended on Friday with a shooting star, with the upper tail penetrating the upper Bollinger band with the consequent rejection at the 200 dma. This candlestick could flip the "spring balance" to the equity bullish side provided the sequence of higher lows/highs from the May 22 low is broken by the loss of 14.00 and the MACD daily signal cross is cancelled.

VIX Daily Chart
Larger Image

If you have been reading my weekly updates you must be aware that I have been suggesting that SP500 is involved in a topping process with a potential Ending Diagonal. Today I think that we can formulate two potential Ending Diagonals.

SPX Weekly Ending Diagonal Chart
Larger Image

SPX Weekly Ending Diagonal Chart 2
Larger Image

If this pattern is the correct one, given the serious deterioration of momentum and breadth indicators I doubt that the state of oversold will allow this Ending Diagonal scenario to pan out without a catalyst that might trigger a huge short squeeze. Obviously I am thinking of good news coming out of Greece (So far there is not a hint of positive resolution)

The next event risks are FOMC on June 17 and Quarterly OPEX on June 19. But I doubt that price could remain in a holding pattern until then

Not only bears are gaining the upper hand by way of price but also Breadth indicators are horrendous. We don't have to analyse a ton of indicators to reach the same conclusion that price should soon give away if there is not a sudden breadth thrust. Just look at the chart of the NYSE Summation Index. It is falling to the abyss. You may argue that it is oversold but I would not bet the farm that a bullish signal cross is in the cards

NYSE Summation Index Daily Chart

Hence since a rebound is probable, but we don't know beforehand the potential target, going forward we have to monitor the McClellan Oscillator which on Friday was displaying a slight positive divergence (But it is not oversold). A rebound that it is not sold by eod requires the Oscillator to reclaim its 10 dma. Higher targets and even a new all time high will be possible only if the Oscillator does not fail at the Zero line. A negative McClellan Oscillator is a favourable environment for the Bears

NYSE McClellan oscillator Daily Chart


Daily time frame:

SPX Daily Chart
Larger Image

Conclusion: With the intention of having no bias or prejudice, in my humble opinion, we are finally seeing initial signs of a breakdown. In the recent past dip buyers have saved the trend, this time without a catalyst the risk of a "dead cat bounce" is large (A small upward oversold price movement in a potential new bear cycle)

 


 

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 2011-2016 TheWaveTrading

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