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Weekly Analysis

We have two conflicting Elliot Wave Patterns:

The long term EWP is bearish vs the short term EWP is, so far, bullish.

  1. The long term EWP is bearish since the advance from 2009 to 2011 is clearly corrective therefore the forecast calls for a large decline off the 2011 high.

    In this time frame I am working with two potential scenarios:

    1. On July 2011 SPX established the top of the wave (X) from the 2000 peak.

      If this is the correct scenario then price is now tracing the second double three = wave (Y) that should bring price back towards the March 09 low.

    2. On July 2011 SPX established the top of the first up leg of (X) = wave (A).

      If this is the correct scenario then price is now tracing a corrective pattern: Zig Zag, Double Zig Zag, Flat or a Triangle that will establish the bottom of the wave (B) from where it will resume the intermediate up trend with a wave (C) up that will have to complete the wave (X).

      If the pattern in progress is a Zig Zag or a Double ZZ then price should drop towards a potential target range: 1010 - 927

So far both scenarios are valid and it is too early to favour one, in addition the 3-wave decline from "my nominal high" on July fits in both counts.

What is a fact is that even in the less bearish scenario we should expect lower prices ahead since the structure of the rally off the October 4 low is "once again" corrective, in other words price is involved in a countertrend rally that is in the process of topping.

But probably it is not over yet and as long as price does not deny it this is my forecast.


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  1. The short term EWP is bullish.

    The outcome of the price structure in this time frame is suggesting that price can accomplish more business to the upside before rolling over.

    It is a fact that the move off the October 4 low is bearish but at the same time the pullback in progress does not look impulsive.

    If a 3-wave (ABC or ABCXABC) is followed by a corrective pattern then the price structure portends more upside before it can be considered completed, therefore atm I am considering that the decline from the November 1 high will is accomplishing a partial retracement of the October advance. On Thursday price reached the 0.382 retracement and even though the odds for a much deeper pullback are large I would not worry to switch to a bearish stance as long as the gap at 1155.46 is not closed and the downside pattern remains corrective.


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The short-term EW options with a bullish resolution imply that SPX is tracing a Zig Zag:

  • Triangle wave (B): If this is the correct pattern then price has to unfold an impulsive wave (C) down. The extension 1 x 1 target is at 1182


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  • Ending Diagonal Wave (C)


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IWM with an overall corrective pattern from the October peak it could also be involved in an Ending Diagonal.


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And if price decides to go south, the following option could open the door to a bearish resolution:


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In the technical front we have bearish signal crosses across the board.

If a bullish resolution is in the cards then:

  • The daily MACD has to remain above the zero line.


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  • Both the weekly Stochastic & the MACD should not trigger a sell signal


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In the mean time both the daily Stochastic and the McClellan oscillator are approaching the oversold territory.


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While CPCE is too high and may allow on Monday follow through to the upside.


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VIX should give us clues regarding the next directional move depending upon if it is tracing a bullish falling wedge, which needs one more down leg or if it breaks above 37.53 in which case all bets are for the bullish scenario


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Seasonality is bullish before Thanksgiving holiday.

 

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