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Weekly Technical Analysis
WHICH IS THE PREVAILING CANDLESTICK: THURSDAY'S SHOOTING STAR OF FRIDAY'S HAMMER?
Despite this weekend I have family and friends engagements I have been able to make up a brief update.
Lets review the EWP from the November 16 low.
In my opinion it is not impulsive:
- The first section (November 16 - December 20) is clearly overlapping therefore it cannot be a wave (1)
- The second section (December 31- February 19) if it has been completed with an Ending Diagonal, the February 19 high cannot be a wave (3)
If these 2 assumptions are correct the corrective EWP from the February 19 top cannot be considered a wave (4) that will open the door to a wave (5) up.
Therefore relaying on the two potential Ending Diagonals that price has unfolded form the November 16 low, in my opinion, the most reasonable count that is appropriate with EW rules and better explains this complex internal structure is a Double Zig Zag.
If this count is correct, barring a "metamorphosis" into a Triple Zig Zag which would imply much higher prices ahead, the odds that from the February 19 high price has began a corrective phase are large.
In addition so far we have a sequence of lower highs/lows that is suggesting that the next directional move should be to the down side. Once/if price establishes another lower low and breaks the trend line support in force since the November 16 low then we will have the absolute confirmation that a corrective pattern from the February 19 high is already underway.
If the correction is confirmed then I expect a bottom to be established either on March 15 (Quarterly Opex) or on March 20 (FOMC).
If this is the case then form the February 19 high price could be unfolding another Double Zig Zag (This one downward) that has a theoretical extension target in the range 1479.41 - 1451.
Moreover there is a chance that last Friday price has completed with a 3-wave up leg the wave (B) of the second Zig Zag.
Because there is a potential Leading Diagonal from last Friday's hod:
Therefore if next Monday SPX does not break to the upside with another higher high the Leading Diagonal can pan out opening the door to an impulsive decline.
As you can see we have a "seismic risk" where a move of a few points above or below Friday's eod print can make a heck of a lot of difference.
If what I have discussed above makes any sense and above all price confirms the potential downward corrective pattern with a wave (IV) then my preferred long term count which implies that price is unfolding an Ending Diagonal from the June lows could pan out.
So we need to see next Monday who wins: Thursday Bears'
Shooting Star of Friday Bulls' Hammer?
Keep in mind that this Ending Diagonal "project" could establish THE MAJOR TOP.
In the technical front:
- Summation Index is aligned with the scenario of a larger pullback. This breadth index at the end of January has issued a sell signal. The next buy signal should occur when the weekly stochastic drops to the oversold zone:
- Momentum indicators are giving mixed signals. The RSI even though it has recovered above the 50 line the sequence of lower high/lows remains in force (Bearish signal) while the Stochastic last Thursday has issued a bullish cross (Bullish signal).
- The McClellan Oscillator MUST not cross the zero line in order to prevent bulls to abort the short-term bearish scenario.
There are two caveats that could favour the bulls:
- There are too may bears in the equity option camp:
- The EUR could attempt an oversold bounce. In my opinion here price is unfolding a corrective wave (B), which is not over yet. As long as price remains below the 10 dma = 1.3177 the trend remains clearly down but even with a shallow bounce equity bulls could make the most of it by messing up an already complicated short-term pattern.