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Weekly Technical Analysis

By: TheWaveTrading | Saturday, March 30, 2013

THE CORRECTIVE UP LEG FROM THE NOVEMBER LOWS IS APPROACHING ITS END

The sideways pattern (Contracting) from the March 15 peak has formed a plausible Triangle. EW wise a Triangle always precedes the final wave structure that completes an EWP.

Due to the lack of an impulsive internal structure in the up leg from the February 26 reaction low, in my opinion, this is a Triangle wave (B).

But since the "thrust" out of the Triangle is also corrective I have to consider that price instead of unfolding an impulsive wave (C) = (Z), from the November 16 low, it will unfold an Ending Diagonal therefore the top could be delayed 1 or 2 more weeks.

Potential Target range for the pending wave (C) = (Z):

SPX 60-Minute Chart
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If the up leg from the November lows is unfolding a Triple Zig Zag we already know that price is not establishing a major top yet (The assumed wave X from the 2009 low cannot be considered over with a corrective up leg). Instead the following pullback should bottom in the range 1485 - 1435.

SPX Daily Chart
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As I mentioned on March 19: "The major consequence of being a corrective up leg resides in the implications for the long-term pattern, since the idea suggested in my last weekly update could become the front-runner option". I am referring to an Ending Diagonal that will complete the Triple Zig Zag from the November 2008 low. If this scenario plays out then price will establish a Major Top during the last quarter 2013 - first quarter 2014.

SPX Weekly Chart
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I am monitoring the following etf which are also forming a likely Triangle wave (B).

SMH Daily Chart
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IWM Daily Chart
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And XLF since it has began a corrective pullback that should be a wave (B):

XLF 30-Minute Chart
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VIX so far it is diverging from SPX but the pattern that is unfolding is not clear. If last Friday's lod holds (It coincides with a trend line support in force since the March 14 low) we can make the case of a potential triangle that would allow a move towards the range 14.61-15.40 (Keep an eye at the falling upper Bollinger Band). But the Stochastic has to reverse and cancel the bearish cross.

Maybe it will form a large bearish flag.

VIX Daily Chart
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In the technical front:

The US equity market continues to establish new highs despite languid breadth indicators. This is a warning that the lack of "vigour" should result in a trend reversal. But despite the negative divergences Price has to confirm the shift.

I have suggested that the November up leg can be concluded with an Ending Diagonal, if this count is correct we are still in the wave (I) within an overlapping 5-wave sequence, therefore we are still relatively far (4 waves away) from a potential trend reversal.

Therefore in addition of monitoring the potential ending pattern I will closely watch the McClellan Oscillator since it will give us clues regarding the "scope" of the SPX Triangle thrust.

So far we have a confirmed shift of the downtrend from the March 8 peak:

Therefore it is probable that the Oscillator will be aligned with the short-term bullish SPX scenario until the Stochastic enters the overbought zone. IF instead the McClellan abruptly reverse to the down side establishing a new lower low then regardless of the EW counting price will most likely confirm a trend reversal.

NYSE McClellan Oscillator 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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