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SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Tuesday, January 29, 2013

I know, lately my daily updates are getting really boring, but I cannot change my scenario.

There is no change:

The probability of a pullback is overwhelmingly much higher than the odds that the up leg form the December 31 has much more business to the upside.

I have recently discussed that momentum end breadth indicators are strongly suggesting that the most likely outcome has to be a correction, but price so far has denied the unavoidable event. Maybe tomorrow's FOMC has something to do with this market behaviour.

I remain confident that the recent price action is carving out a short-term top but at the same time I remain wary of expecting a large correction, since if my preferred count is correct, from the November lows, price is unfolding a Double Zig Zag, which still needs one more wave (C) up, therefore I am expecting a wave (B) pullback.

As I have discussed in my last weekend up date, NDX should have already begun a technical pullback with a target in the range of the trend line support (From the November lows) - January 2 gap fill = 2675 - 2660.93.

NDX Daily Chart
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Regarding SPX the overlapping internal structure of the pattern unfolded in the last few days suggests that price is either unfolding:

  1. Triangle:

SPX 15-Minute Triangle Chart
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b) Ending Diagonal:

SPX 15-Minute Ending Diagonal Chart
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The short-term pivot support is at 1495.33

If bulls today fail to achieve another higher high we can make the case of an already complete Ending Diagonal.

SPX 15-Minute ED Complete Chart
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Although yesterday's high CPCE reading does not favour the complete ED option.

CBOE Options Equity Put/Call Ratio Chart

Regarding the target of the assumed wave (B) pullback I expect a bottom in the range 1474 - 1451.

SPX Daily Chart
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VIX, which is now clearly diverging, is suggesting that equity market should be close to a reversal.

VIX 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.

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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