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SPX: Follow Up of the Short Term EWP

By: TheWaveTrading | Tuesday, February 26, 2013

TREND REVERSAL

Let's begin today's update with the DOW, because I think it will set the "pace" and define the EWP of the correction for the following reason.

DOW Daily Chart
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Yesterday I mentioned that the tight Bollinger Bands were auspicating an imminent large move and that if/once a lower low was established there is nothing in the chart (Absence of supports) that can prevent a drop towards the next critical support located at the September peak = 13653.24.

Probably a bottom should be established either during Quarterly Opex week (March 15) or more likely in the next FOMC (March 29), which will also include a press conference by Bernanke.

I am expecting a potential bottom in the range of the of the 0.382 - 0.5 retracement of the November-February up leg with an eye at the rising 20 wma which today stands at 1448. Below in the SPX weekly chart, which I posted this weekend, I have highlighted the assumed target box of this correction:

SPX Weekly Chart
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Let me now show you the internal structure of the decline of the DOW.

DOW 5-Minute Corrective Chart
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In the case of SPX, maintaining the same criteria set by the DOW, I will consider that yesterday's hod is a wave (B) belonging to a corrective EWP.

Here we could make the case that price is unfolding an impulsive wave (C) down, either we almost have the wave (3) or the wave (3) is extending (price is now on the wave (I) of (3).

SPX 5-Minte Impulsive Chart
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Conclusion: The trend reversal is confirmed but it is not going to be a "bed of roses". It looks like price will unfold a complex corrective pattern.

Regarding the SPX potential path, as already discussed, in my opinion, price has completed with a DZZ the November-February up leg. Now I am anxiously waiting for the confirmation that price is involved in forming the Ending Diagonal option of my preferred long-term count by breaking down through the September high at 1474.51.

If this is the case the target box of the assumed wave (IV) ed is located in the range 1459 - 1437.

SPX Daily Chart
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At yesterday eod we already have extreme bullish readings (The market is already short-term oversold:

- Eod print below the Bollinger Band

- NYSE TRIN eod print at 2.86

- NYSE TICK eod print at -843

Therefore odds are favouring a bounce attempt either today or tomorrow. Keep in mind that today Bernanke will address the House of Rep. hence if he wants he may induce a short covering bounce.

In the technical front:

NYSE McClellan Oscillator Chart

SPX Momentum Chart
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Lastly VIX yesterday was the major news of the day by jumping 34%. This is not suggesting the buy the dip stuff. Instead this feels like panic is creeping in.

The January 2 gap has been closed (Now there is only "white space" until the December 28 peak at 23.20).

This one-day move is clearly overextended, but I don't expect a major retracement as long as it remains above the 200 dma and its RSI above the 50 line.

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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