Daily Analysis

Today's up date is shorter than usual and I will only analyse SPX.

Yesterday SPX finally confirmed the Ending Diagonal terminal pattern by a gap down and go and intense selling pressure during the entire day. This is what I was looking for as the common script of a finished ED.

The selling was quite intense, but, we already have NYSE Trin at 2.42 while the McClellan oscillator in extreme oversold territory.

While CPCE is too high; yesterday it closed above the upper BB.

Therefore without analysing the internal structure of the sell off from the Top of the assumed wave (3), these readings should be respected and treated as a warning of a pending possibly large rebound attempt.

In the mean time the RSI has dropped below the 50 line, which is a concern facing the idea that the pullback belongs to an EWP of a wave (4). While the Stochastic has further room to the down side before it gets oversold.

Larger Image

So far the "plan is on track":

Larger Image

• We have the top of the assumed wave (3); the up leg off the December 19 low is over.
• We have the thrust down from a completed Ending Diagonal.

Therefore I maintain the scenario, which calls for a corrective pullback that should establish the wave (4) of (C) from the November 25 low.

I have already mentioned several times that if this scenario plays out then, probably, price will unfold/should unfold a Flat or a Triangle; (alternation guideline)

Regarding the potential target for the low peak of the wave (4) EWP I consider that the 50dsma - Rising trend line support from the October 4 low is an obvious "magnet" = 1320 zone. Therefore I am not expecting a "huge" sell off.

But moves below 1300 could jeopardize this count.

Regarding the potential internal structure of the decline in my opinion it is corrective since we have "only" a 7 -wave down leg.

Hence if the eod small wedge is confirmed, price should have established the first down leg of the correction = Potential wave (A).

Usually in a multi day/week corrective pattern the initial wave down consist of 2 down legs therefore if the possible rebound takes place we could have 2 short-term scenarios:

1. If the rebound fades below 1358: Zig Zag with one more leg down before a meaningful rebound should come about

2. If price recovers above 1362 then the odds of a retest of the previous high will increase.

Larger Image

Keep in mind that dealing with corrective EWP is not an easy task since they can easily morph.