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SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Wednesday, November 14, 2012

I maintain the short term scenario that calls for an oversold bounce due to oversold momentum and breadth indicators and above all because SPX has reached a significant support zone located at the 0.5 retracement of the June - September up leg.

I rule out that the overdue bottom will establish the end of the corrective pattern off the September 14 high; instead I am expecting a multi-day counter trend rebound that should fade in the 1402 - 1410 area.

In the weekly chart below we can see that if bulls fail to hold price at yesterday's lod the next potential support is at the 50 wma = 1366 which is the last potential reversal area above the 0.382 retracement which stands 28 points below yesterday's eod print.

In my opinion the probability of an extension of the current down leg to the 0.382 retracement = 1346 is less likely.

SPX Weekly Chart
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Yesterday, bulls had in their hands the perfect reversal pattern with a thrust down, at the opening, form a potential Triangle that may / can have finished a Double Zig Zag off the November 6 peak.

One hour and half after the opening I posted on Twitter / StockTwitts the following SPX chart:

SPX 15-Minute Chart
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However bulls were not able to achieve a follow through of the bullish set up, not even they were able to hold price above the 200 dma and by the eod the short term pattern is still not confirmed.

So we now have 4 consecutive eod prints below the 200 dma and the risk of an extension to the down side remains elevated.

Maybe OPEX week is the reason of this whipsaw behavior.

We also have to keep in mind that next week (Thanksgiving holiday shortened week) has a bullish seasonality.

So SPX is oversold at a significant support zone ahead of OPEX and Thanksgiving.

In my opinion the odds of a bounce remain larger than an extension to the down side, although the "ideal" set up would be continued weakness into OPEX day and a rally next week.

Since the SPX bullish set up is not confirmed yet I suggested to monitor the USD Index for clues.

Here I have been monitoring a potential bearish rising wedge; unfortunately neither this pattern so far has been confirmed, although it is quite close to a validation by a move below 80.685.

If it is a wedge we will notice it by a strong move to the down side.

US Dollar Index 60-Minute Chart
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Daily momentum indicators are reflecting the short-term uncertainty with the RSI lack of positive divergence vs its November 9 low and the Stochastic, which has not issued yet a buy signal.

SPX Momentum Chart
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The immediate time frame outcome is even worse if price follows the McClellan Oscillator, which so far is not able to curb the strong down side inertia.

NYSE McClellan Oscillator Chart

The NYSE Adv-Dec volume is probably one of the few short-term breadth indicators that remain bullish, but if price does not confirm soon there is no guarantee of a reversal.

NYSE Advance/Decline Volume Chart

VIX odd behavior is sending mixed signals, but the loss of the 17-pivot support and the trend line support in force since the October lows (The RSI has also breached its trend line support) has damaged the up trend.

We now have a tight range between the 200 d = 17.73 and the November 2 low at 16.

If the pivot support at 16 is breached then I expect a quick drop towards the lower BB at 14.70.

VIX Daily Chart
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Lastly below I show the daily SPX chart, just in case a bottom was established yesterday, with the target box where I expect the countertrend rebound to fail.

SPX Daily Chart
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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.

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