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SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Thursday, February 21, 2013

I have a several meetings this morning hence this is just a brief update.

Yesterday, probably given to the desperation I wrongly discarded the Ending Diagonal option that I had been following for more than two weeks. I knew that price eventually would have formed a bearish rising wedge but for some reasons I had lost the confidence, maybe given the overshoot above the converging trend line and the lack of a visible Zig Zag of the assumed wave (V).

The fact of the matter is that yesterday an initial mild and corrective looking pullback morphed in an aggressive break down after the FOMC minutes were released. The end result is the typical reaction that follows a completed wedge.

SPX 30-Minute Ending Diagonal Chart
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Further evidence that price has established a top (In my opinion the up leg off the November lows is over) is given by the VIX which rose almost 20% closing the day with a white Marubozu at the upper BB where it is also located the 50 dma. If as I expect the equity market has began a multi-week correction then VIX should easily reach the range 16.94 (200dma) - 18.02 (January 2 gap fill).

For the immediate time frame the stochastic has plenty of room to the upside before entering the overbought zone.

VIX Daily Chart
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Moving back to SPX in the daily chart below we can see the break down of the bearish rising wedge with the loss of the short-term pivot support at 1514. The daily candlestick, a black Marubozu is indicative of the likely reversal.

SPX Daily Chart
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We are at the initial stages of a likely multi-week pullback, which will be confirmed once bears reclaim the support at 1498.

If my preferred long-term count is correct the projected target should be located in the range 1460 - 1437 provided a break down of the September's peak at 1474.51.

Below I show you the Ending Diagonal project, which I have discussed, several times in the weekly updates. This pattern if it pans out will establish the top of the wave (X) off the 2009 lows.

SPX Weekly Chart
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For the immediate time frame even though the pattern is not 100% clearly impulsive I will assume that price should be on the verge of establishing the bottom of the wave (3) of the first impulsive sequence.

SPX 5-Minute Chart
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In addition the high eod print of TRIN at 2.98 is suggesting that today we should expect a bounce attempt (Possible wave 4).


Author: TheWaveTrading


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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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