From one of the worst Thanksgiving week ever, with SPX testing on Friday the 0.618 retracement, yesterday buyers finally stepped in and we got one of the best Monday ever.
The s/t positive reasons highlighted in the weekend post, which were suggesting that a rebound was due, materialized in an aggressive move.
Given the extremely oversold readings reached last week I don't expect that the rebound which has began with a short squeeze will be a one day event.
Hence for the short term I have a bullish bias.
Rebounds from an extended down move are always triggered by a short squeeze. If good news hit the tape then an oversold bounce could morph into something stronger.
I have discussed at length that the longer-term breadth and momentum indicators are suggesting that the intermediate down trend could have resumed its path from the October peak but price has not confirmed yet such an outcome since we are still lacking an impulsive pattern to the down side.
I mentioned that for the short term I am following three potential Elliot Wave patterns:
-
Option 1: Bearish impulsive fiver in progress with the wave (3) done.
-
Option 2: Ultra Bearish fiver in progress with only the wave (I) of (3) done.
-
Option 3: Bullish ABC which needs an immediate strong and impulsive move above 1215.42.
Regarding the first option I mentioned that:
"Given the relatively proximity of the overlap and that the assumed wave (2) was established in 10 days it does not seem probable that price will spend a similar amount of time in shaping the wave (4) without an overlap. Hence a failure at the 50 dsma = 1206 will increase the probability of an extended wave (3)"
Today I rule out the first option, while I add, atm it is only a speculative idea, a Triangle "project" which could play out if price keeps tracing corrective patterns.
Review of Option 2:
If this is the correct count price has to trace a corrective up leg which is not expected to overcome the area of the 20 dsma & the 0.618 retracement = 1224
Anything higher would question this scenario
Review of Option 3:
If this is the correct count then a multi week bottom has been established and price should move above the October peak with an impulsive pattern.
With the price information available this option does not seem to be feasible.
I have a s/t bullish bias but more time is needed. I need additional price information, which will help to identify the most likely path.
What I am expecting is at least a 2 -wave up leg.
We have clear resistance / target numbers that will help to adjust the short-term strategy depending upon the price reaction.
-
First Number = 1206 = 50 dsma
-
Second Number = 1215.42 = Overlap
-
Third Number = 1224 = 0.618 retracement
Daily Momentum indicators are also very helpful:
RSI is now approaching the first resistance (trend line) then, if above, the 50 line will decide upon the "ultra bearish" option".
EU bond auctions and news will remain the main focus. Keep in mind that we are approaching the ECB meeting on Dec 8 and the EU summit on Dec 9.
Bond spreads and the EUR are the indicators that best gauge the "feeling of the crowd".
Regarding the EUR we have a s/t bullish Inverted H&S with a target at 1.3590, hence being long equity should be safe at least until the target is reached.
