Yesterday, SPX with a "covert"-ending ending pattern completed the corrective down leg off the December 7 high.
The Dow traced a better-looking Ending Diagonal:
The strong advance began in Europe where a successful Spanish debt auction and news from ECB new liquidity injection program (LTR) - whose first auction will take place this morning - triggered a short squeeze.
This is how a bottom is usually established = potential ending pattern + news + short squeeze.
In the US all the gains were mostly done at the opening and obviously given the overshoot to the upside we already have extreme overbought readings of TRIN witch closed at 0.17. Hence some type of consolidation should be expected for the immediate time frame.
The recovery above the 50 d = 1230 now opens the door for a move towards the 200 dsma = 1260.
Keep in mind that price, since the end of October has failed 3 times to overtake the 200 d, therefore if price is able to break it (at least with 2 consecutive eod prints above it) then we would have an important bullish statement.
The area of 1257 will also gain attention as we approach year-end.
With 2,5 days left to Christmas I guess that for what is left of the week the trend will be up/sideways.
But caution should be maintained since as, I have mentioned, the larger time frame pattern is very muddy and 1 day rally unfortunately does not bring any "light" nor a substantial change in the complex EW pattern that price has been involved since last summer.
Objectively, without EW counts, the trend since this summer highs is atm clearly down since we have lower highs/lows all the way to the October 4 low. Hence as long as 1293 is not breached, up legs should be considered as countertrend moves, and we cannot rule out either that price is involved in a large corrective pattern that will result in lower prices ahead.
Regarding the potential EW pattern that I have been highlighting lets focus the attention of the 2 options that would allow higher prices.
- Triangle wave (B)
If this is the correct pattern, in my opinion, price is still tracing the wave (C) with a Zig Zag. Hence the current wave (b) should fail to breach the 200 dsma.
If price maintains the contracting pattern, then it could be completed by mid January.
- Impulsive or Ending Diagonal wave (C)
If this is the correct pattern then price will have to trace a 5 wave impulsive up leg or unfold an Ending Diagonal.
The potential expected target range = 1293 - 1376
For the time being and as long as we don't have a substantial improvement of breadth and momentum indicators this option does not have look viable.
The EUR pattern is also a concern as the current rebound is clearly corrective.
And VIX with a bullish falling wedge both in the long term and short term time frame should also be a concern until proven otherwise.
VIX long term:
VIX short term:
