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Daily Analysis

SPX is refusing to give in an overdue correction, something that momentum and breadth indicators have been warning for a while.

It dies not matter which indicator is your preferred one, across the board the suggestion is that price should not have much more upside left. And the "logical" next move should be at least 1-2 weeks of consolidation.

In addition as price has reached the horizontal resistance at 1347 it could be forming a potential "topping" candlestick similar to the one we had the last week of January. When this sort of candlesticks are forming price could be unfolding a potential ending pattern.

Above 1347 the next resistance is located at 1356.

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The awaited top should allow probably at least 2 weeks of a corrective pullback, followed by further upside in order to complete the Zig Zag off the October 4 low. The projected target for the wave (C) is located in the 1376 area. If this scenario plays out then, once the wave (C) is in place I will reassess the longer-term time frame outlook.

I keep monitoring:

  • The McClellan Oscillator, which is not able to match the pace of price and once again we have another s/t negative divergence.

  • The weekly Summation Index, which has reached an extreme high level usually this, occurs when price is on the verge of a point of exhaustion.

  • VIX: the potential massive bullish falling wedge has not much more room until it will have to break to one of the sides. In addition the BB are getting tighter something that it is usually the "warm-up time" before a large movement.

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  • Bonds: I am watching the Bund since it should "catch a bid" when we "see" the equity reversal. Closing the gap at 138.02 should be considered as another warning.

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Therefore the combination of extreme overbought readings + an overly mature up leg + a converging structure of VIX etc. ...should "spark off" a sudden and sharp move to the down side. Probably a catalyst is needed.

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