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SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Friday, November 16, 2012

It is obvious that SPX is now "extremely" oversold. I say "extremely", but keep in mind that it is a relative judgment since extreme oversold readings can become more oversold. Therefore there is no guarantee that price has established a short-term bottom as long as price forms a reversal pattern and it does not sink at the close, which has been the common theme during this week.

A reversal pattern, in order to be successful, requires an improvement of breadth indicators.

The NYSE Adv-Dec Volume apparently it is showing from last Wednesday "timid" accumulation.

NYSE Advance/Decline Volume Chart

But a breadth-thrust is required; hence I would like to see the McClellan Oscillator breaching its trend line resistance.

NYSE McClellan Oscillator Chart

Usually a catalyst is also needed (some good news), or maybe a short squeeze can be triggered by the PPT firing up buy programs.

The fact of the matter is that in addition to an oversold market price is approaching the 0.618 retracement at 1346.

Maybe the majority of the bears will think twice before shorting SPX at a major support zone.

If today is the day then in order to increase the confidence of a potential multi day rebound that is expected to endure into next shortened Thanksgiving week we need to see a long tail in the weekly candlestick, much better if the eod is above the 50 wma=1366.85.

SPX Weekly Chart
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If this is the case then the daily stochastic will most likely issue a buy signal.

SPX Momentum Chart
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Following up with the short term bullish scenario, NOT CONFIRMED YET, although it is anyone guess where would be located the target, I expect at least a test at the 200 dma = 1382, while maybe the best case scenario for the bulls would be a kiss back at the broken October Trend Line. There is plenty of overhead resistance where bears will most likely reload short positions.

Therefore this issue will have to be assessed on a daily basis.

But I can highlight 3 numbers:

#1 = 1382, #2 = 1389 & # 3 = 1396

By no means I consider this potential bottom the end of the corrective EWP from the September high, since if the count that I am following is the correct one from the November 6 peak price should carry out a Zig Zag, hence after the oversold bounce there should be a pending wave (C) down which is expected to establish THE BOTTOM with positive divergences.

SPX Daily Chart
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Regarding the immediate time frame price action, it is really tough to have a confident count sine, in my opinion we are dealing with a corrective move, and unfortunately it can easily morph.

Maybe price is unfolding a Triangle that should establish a bottom with the last thrust down, who knows if at the 0.618 retracement the PPT will step in.

SPX 15-Minute Chart
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Today I don't have anything to say about the VIX; instead I am very much interested to see if the VXX Triangle Project plays out, since it could be easily aborted today by a move above 37.64.

If it is confirmed then the wave (E) of the Triangle should coincide with the SPX wave (B) rebound.

VXX 60-Minute Chart
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Enjoy the weekend.

 

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.

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