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Weekly Technical Analysis

By: TheWaveTrading | Sunday, November 4, 2012

Friday ended up being a nasty day for the bulls resulting in a bearish Engulfing candlestick.

As you can see in the SPY daily chart below price opened above Thursday's hod, filled the gap at 145.09 but sellers stepped in at the 50 d ma and price closed almost below Thursday's lod.

This price action can be considered as a technical failure and at the same time it can have satisfied the target for the "assumed" wave (B) oversold bounce.

If this is the case and the wave (C) down is already in progress then the equality extension target is at 137.59 (slightly below the 200 d ma).

SPX Daily Chart
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On the face of it we could conclude that the next directional move is going to be to the down side.

On Thursday I made a basic checklist of items needed in order to identify the end of the corrective bounce:

We can count the bounce as a Triple Zig Zag.

In addition if next Monday price completes an impulsive sequence then the following bounce is a SELL.

It is an irrefutable fact that the bounce off the October 26 low is corrective hence even if price has not established yet the top of the wave (B) this move will eventually fail.

This pattern will most likely be resolved early next week.

SPX 5-Minute Chart
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McClellan Oscillator:

NYSE McClellen Oscillator Chart

Without another push higher of price we don't have negative divergence.

If a top is in place the Oscillator has to breach the short-term trend line support and establish a lower low.

Momentum Indicators:

The RSI remains above a short-term trend line support (off the October 24 low)

The Stochastic remains with the buy signal issued on October 31.

SPX Momentum Chart
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We have a bearish Engulfing Candlestick.


The "picture" is favorable for the bears BUT they need to finish off the task next Monday by achieving an impulsive decline since so far Momentum & Breadth indicators are not aligned for the kick off of the "assumed" wave (C) down.

A complete impulsive sequence would allow a bounce into Election Day and a post Election resumption of the wave (C) down.

SPX weekly candlestick, an Inverted Hammer, can be considered as an antagonist to the daily Engulfing. It is synonymous of hesitation establishing a tight fluctuation range clearly defined by the 10 w ma = 1436 and the 20 w ma = 1407

The Weekly Inverted Hammer is suggesting that price could attempt a bounce at least at the beginning of next week; maybe we have to wait for the post-presidential election decline idea.

In the weekly time frame in addition to the well-known 1395 & trend line support off the October 2011 lows, inside the target box we have a horizontal support at 1375 and the rising 50 w ma, which at the moment stands at 1359.

SPX Weekly Chart
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My scenario remains the same:

Price form the September 14 high is unfolding a Double Zig Zag, which needs the last wave (C) down.

As I mentioned last Thursday:

"The assumed final down leg could bottom either at:

1. The 0.382 retracement which coincides +/- with the rising trend line off the October 2011 lows = 1395
2. In the range or the 200 d ma = 1378 - 0.618 retracement = 1346

At the moment I have a preference for the second target zone, with a likely candidate in the range of the 200 d ma and the 0.5 retracement = 1370."

If last Friday SPX has established the top of the wave (B), the 1 x 1 extension target for the pending wave (C) down is at 1373.

SPX Daily Chart
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In the technical front:

We have to watch if price will have unfolded a reversal pattern once the RSI approaches the 50 line and the trend line support in force since the August 2011 lows.

SPX Weekly Momentum Chart
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NYSE Summation Index

NYSE Summation Index Weekly

NYSE Advance/Decline Volume Chart

Lastly VIX with an impressive Piercing Line should have established a bottom at the lower trend line of a potential large Bearish Flag.

The RSI is has not breached its trend line support.

Therefore It is reasonable to expect that in the next few weeks VIX will challenge the October 23 high, at the same time that SPX is unfolding its wave (C) down.

VIX Daily Chart
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Author: TheWaveTrading


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