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Weekly Technical Analysis
DAILY HARAMI AND WEEKLY DOJI ARE SUGGESTING THAT BULLS CAN REGAIN THE UPPERHAND
Negative divergences, SPX displays 3 higher highs on May 22, August 2 and September 19 while weekly momentum and breadth indicators have lower highs, are the major concern regarding the durability of intermediate up trend.
Therefore if the negative divergences are not erased odds are favouring the scenario that calls for a topping process that is expected to conclude the advance from the 2009 lows.
Elliott Wave wise, from the November 2008 nominal low, price could be unfolding the wave 7 (Wave Y of a Double Zig Zag).
The last wave of a corrective pattern has to be impulsive. As I have been discussing since September 16, If price were now involved in forming an Ending Diagonal then we would have the impulsive sequence (From the June 2012 reaction low) that should conclude the Double Zig Zag count.
If price is forming an Ending Diagonal we are either in the late stages or the bottom of the wave (IV) was established last Thursday.
As of Friday eod print we do not have yet the confirmation that the wave (IV) is in place.
If the wave (IV) has not been concluded yet it will have to bottom no lower than 1661 otherwise the Ending Diagonal scenario will be aborted.
The potential target if the wave (V) is located in the area of 1750.
On Friday I mentioned that usually: "the bottom of a prolonged down leg is established with a washout sell off, when bulls capitulate. Usually we should see a spike of TRIN above 2 or TICK below -1000, in other words a selling climax. In addition a reversal candlestick pattern would help to increase the confidence that the awaited bottom is in place".
So far we have not seen a washout selloff but we do have a potential reversal Harami candlestick.
If next week the 50 dma (1680) holds, and bulls recapture the 20 dma, which stands at 1695 (It also coincides with a gap that has to be closed), then the probability that the wave (V) of the Ending Diagonal has been kicked off will substantially increase.
Otherwise we should have the missing capitulation sell off with a target in the range 1666-1662.
Bulls also have in their favour the VIX Bollinger Band buy equity signal.
But it is too premature "to claim victory"; until the last higher low located at 15.47 is taken out. In addition the bullish cross of the 50 dma above the 200 dma is worrisome.
Also the weekly Doji with a long tail suggests dip buyers have intervened in order to prevent the loss of the 10 wma, which coincides with the 50 dma. If next week bulls recapture the 3 wma, which stands at 1697, they will regain the upperhand.
In my opinion from the September 19 high price has unfolded a Triple Zig Zag.
The recovery above both the 200 ma and the 50 ma is turning the 60 min chart positive, increasing the odds that the corrective pattern form the September 19 high has been concluded.
In order to enhance the probable bottom, bulls need a higher low and must close the gap at 1695. Therefore next Monday I will be watching if the 200 ma, which stands at 1685 is not breached by eod.
60 min momentum is also suggesting a potential bottom:
Positive divergence of the RSI
MACD has a bullish cross (Next week it has to reclaim the zero line)
From last Thursday's lod in my opinion price has unfolded a Double Zig Zag (It can belong to the infancy stages of the large Zig Zag of the assumed wave (V) of the Ending Diagonal scenario).
If the DZZ is done there is potential H&S with a target at 1684.50, which almost coincides with the 0.382 retracement.
In this area I will have a bias to go long with a stop below the 50 dma.
Obviously if the low is in we need to see a breadth thrust, hence the McClellan Oscillator has to move above the zero line and the short-term moving averages bearish cross has to be cancelled.
Next week seasonality is bullish.