BULLS ARE LOSING THE UPPERHAND
Yesterday the market followed the script of the always-bullish Tuesday (20 consecutive Tuesdays gains), but despite the large gap up the end of day "picture" tells a different story as the strong advance has been sold, leaving in the daily chart a Shooting Star.
As I discussed in the weekend update a correction is underway but so far the internal structure of the pullback does not give clear clues regarding the "character" of the pullback (Downward = ZZ /DZZ or Sideways = Triangle)
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If the pattern evolves into a 3 -wave down leg then I expect a bottom in the range of 1611-1597. (Red count)
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If bears fail to achieve a lower low (Below last Thursday's lod = 1635,53) then in my opinion price should be forming a Triangle (Blue count).
Both options require that yesterday's gap must be closed.
Despite there is still not evidence of any technical damage in the daily chart as price has recovered above the 10 dma, momentum and breadth indicators are suggesting that probably the 3-wave down leg option could pan out.
- The MACD has issued a sell signal.
- The Summation Index has also issued a sell signal. The RSI is coming off from an overbought reading and so far there is no indication of a deceleration hence a deeper correction is likely.
VIX is also aligned with the scenario of a downward correction, since yesterday's Piercing Line pattern is suggesting the likelihood of the potential kick off of another up leg that could reach the trend line resistance from the December peak:
Lastly as a reminder of my preferred count of the advance from the November lows, once the missing wave 11 is in place I expect a large multi-week/month correction with a potential target at the 200 dma.
