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Weekly Technical Analysis

By: TheWaveTrading | Sunday, March 10, 2013

RISK ON IS BACK

Japanese Yen Monthly Chart
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TLT Daily Chart
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AAII Bullish Ratio Chart

What has happened last week?

Despite we had a lot of warnings from breadth and momentum indicators, price has deviated from the expected path and instead of carrying out a larger pullback from the February 19 peak; the 3-wave down leg has established an unexpected bottom at the February 26 lod.

In the case of SPX, in my opinion, the assumed Double Zig Zag form the November 16 low has morphed into a Triple Zig Zag, hence instead of carrying out a larger retracement of the November-February up leg, price is extending this up leg higher.

If the TZZ count is correct, price should be now involved in the late stages of the wave (A) of the third Zig Zag. Once the wave (A) is in place a wave (B) pullback will be followed by the last wave (C) up. The wave (B) pullback, probably, it will not breach the February 19 peak at 1530.94 (Retest of the break out) and if it does I don't expect a move below the 20 d ma = 1520.

SPX Daily Chart
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Last week reversal has aborted my preferred long-term count since in an ED the wave (III) cannot be larger than the wave (I). Therefore the Double Zig Zag wave (X) is no longer valid.

SPX Weekly Chart
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Therefore instead of a Double Zig Zag (ABC=W; X; ABC=Y) = 7 -wave structure EW wise the last option left is a Triple Zig Zag (ABC=W; X; ABC=Y; X; ABC=Z) = 11 -wave structure.

SPX Monthly Chart
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In a Triple Zig Zag the waves = 3, 7 and 11 have to unfold an impulsive sequence or an Ending Diagonal. Since in my opinion the current up leg (Assumed wave 11) is not impulsive, the wave (Z) should unfold an Ending Diagonal:

SPX Weekly Triple Zig Zag Chart
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Conclusion: Given the corrective internal structure of the rally from the 2009 lows I maintain unchanged the scenario of a wave (X). Last week unexpected reversal has prolonged the "life" of the bearish wave (X), probably into the end of the fourth quarter of 2013, but EW wise once it is complete the next directional move should be to the down side.

Lets go back to the shorter-time frame.

Despite the up leg form the February 26 low is quite stretched (The DOW now has 4 consecutive eod prints above the BB), Friday's candlestick does not suggest that the up leg from the November lows is over.

If the ABC=Z scenario is correct (From the February 26 low) odds favour the wave (B) pullback during next week (Quarterly Opex next Friday) and the wave (C) rally the following week (FOMC on March 20).

The assumed wave (B) pullback will most likely be bought either at 1530.94 or in the range 1526-1521. If the pullback is larger then the wave (Z) should be already in place (Not my preferred count).

SPX Daily Zoom Chart
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In the technical front:

NYSE McClellan Oscillator Chart

NYSE Advance/Decline Volume Chart

 

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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