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SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Wednesday, February 13, 2013

A couple of weeks ago I gave up counting the up leg off the December 31 low given the lack of clarity due to an overlapping internal structure. Instead I opted to focus my attention in attempting to locate the final impulsive up leg or an Ending Diagonal, since an EWP always ends by forming either a 5-wave up leg or a rising wedge.

Last week I discarded the impulsive option and I began working with the Ending Diagonal option, which in my opinion makes a logical choice.

Ending Diagonals are formed in the final wave 5 of an impulsive sequence or in the final wave C of a Zig Zag/Double Zig Zag or Triple Zig Zag. I believe that price is involved in one of the latter corrective options.

Therefore as I show in the SPX 120 min chart below price could be forming the assumed Ending Diagonal within the two black converging trend lines:

SPX 120-Minute Chart
Larger Image

If price is forming an Ending Diagonal then price should be in the late stages or might have finished the wave (III) at yesterday's hod. Once/if the Ending Diagonal plays out I expect price to begin a multi-week correction that will retrace a segment of the up leg off the November lows.

In order to maintain valid the ED option, since I don't know where is the beginning of the wave (I) hence I cannot calculate the maximum length allowed of the wave (III), I need price to carry out sooner rather than later a corrective pullback that carries price below the peak of the assumed wave (I) at 1514.41 If this is the case and today we finally have a correction I expect the 10 dma = 1510 +/- to hold a shallow pullback.

SPX 60-Minute  Ending Diagonal Chart
Larger Image

Since with my bearish stance I find myself against the side of the majority I always spend a lot of time to reflect and study not only the price pattern (EW front) but also what momentum and breadth indicator are suggesting (Technical front).

As I have discussed almost every day there are negative divergence across the board (Negative divergence of the RSI & the McClellan Oscillator, MACD with a bearish cross, Summation Index that is rolling down..) that are suggesting that the uptrend from the November lows is in its late stages.

So I have a potential ending pattern and technical indicators no aligned with this bullish trend but price has to confirm my scenario.

 

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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