WATCHING THE BOND MARKET FOR CLUES
Despite the reasons discussed in my last weekly update instead of a larger rebound more weakness persisted.
With the new lows the internal structure of the decline from the June 19 peak is no longer impulsive therefore if yesterday price has established a temporary bottom, which is not out of the question given the oversold readings of momentum and breadth indicators, the assumed wave (C) of the Zig Zag option from the May 22 high should unfold an Ending Diagonal.
The issue is that given the extreme weakness seen in the market I don't dare to expect a multi-day "oversold" rebound until we either have a higher low (Daily time frame) or/and the gap at 1592.43 is closed.
If the Ending Diagonal pans out the 1.618 extension at 1508 should come into play.
Two huge obstacles must be surmounted in order to gain confidence on the Ending Diagonal: the gap at 1592.43 and the horizontal resistance located at 1598. If this is the case then a "good looking" wave (II) should top at the 0.618 retracement located at 1617.
Regarding the bigger picture, as long as the trend line from the October 2011 is not breached, from the May 22 high price should be unfolding the wave (B) of the third Zig Zag (From the November 2008 low) which should bottom in the range of the 0.5 (1542) - 0.618 (1508) retracement of the assumed wave (A) which began at the December 31 low. Key candidates for the expected bottom are the rising the 200 dma which today stands at 1506 and the mentioned trend line from the October 2011 low.
Let's closely monitor the bond market since it is obvious that if weakness continues the odds of a multi-day rebound of SPX will be substantially reduced.
Yesterday afternoon I posted on Twitter/Stocktwits a chart of the 10-year Treasury Note. I don't know if price is embarked in major reversal with an impulsive decline (Red count) or instead it is unfolding a corrective pattern (Blue count). What is important is that the down leg from the May 1 lower high can be considered concluded with a thrust following a Triangle. If this is the case then a countertrend rebound could reach the 0.382 retracement located at 128.38.
