Another week has ended without price obeying to what the technical indicators are screaming. Both breadth and momentum indicators sell signals and divergences are strongly warning that a price reversal is due.
I have been on the look out for an ending pattern since end of January when SPX ended the week with a spinning top, but the bulls, so far, have aborted the potential reversal set-ups.
Last Wednesday we had the strongest attempt as can be seen in the daily chart of AAPL. The stock opened with a gap up (exhaustion gap) traded to new highs and reversed strongly to the down side leaving a very bearish shooting star with huge volume.
AAPL's potential reversal setup should have made a dent in the astonishing up trend of NDX. There is no indication yet of a top but the short term outcome will change if price closes the gap at 2457.32, which would also mean that price is finally breaking the support trend line from the December's lows.
As I have mentioned in my last up date of the long-term time frame EWP if a top is confirmed, it should be a wave (3)
Therefore I expect a mild correction, and probably the 0.382 retracement of the December up leg will not be breached.
Regarding SPX, the EWP should be aligned with NDX.
Here we have a clear bearish rising wedge that once/if it is confirmed it will mean that the wave (3) from the November's lows is in place. The kick off of the OVERDUE CORRECTION needs an eod print below 1341.22.
If this count is correct a flat or a Triangle (if the alternation guideline is fulfilled) will establish the bottom of the wave (4), which will be followed by an impulsive or an Ending Diagonal wave (5)
This scenario implies that the expected wave (5) will complete that Zig Zag from the October 4 low.
The expected target of the wave (4) should be located in the range 1300 - 1289
If instead price breaches the overlap level at 1267.06 then I will reassess the EWP.
Regarding the longer term EWP, since NDX is strongly suggesting that price has in mind to achieve significant higher prices during 2012 my initial idea that SPX could be involved in a large corrective pattern from the 2011 highs, with a pending move back towards the October lows, is now less likely. Instead the probability that price has resumed the intermediate up trend is increasing.
Hence atm we cannot rule out the price has began the second Zig Zag from the 2009 lows. The structure/intensity of the pullback once the EWP of the October 4 up leg is completed will give us clues regarding which option is the most likely one.
I am not going to bore you one more time with charts of breadth/momentum indicators. If you allow me I only append the weekly chart of the Summation Index, which has a confirmed a sell signal:
And CPCE, which is finally dropping towards the lower BB, in an extended move, this, is an additional warning of a pending top.
In Europe I am watching 2 indices:
- DAX (the handsome), which is synchronized with SPX. Here we can finally count a 5-wave up leg from the December 19 low, hence this index can now reverse anytime.
- IBEX (the ugly). It is obvious that a reversal is already in progress, and if SPX has a pending +/- 5% correction we cannot rule out that price is going to revisit the November's lows although atm It is too premature to detect a confident EWP.
