I maintain my SPX bullish scenario for the Long Term Trend and bearish one for the Short Term Trend.
Long Term Trend: As discussed several times these are the main features of my "working map":
- Price is tracing the wave (X) off the November 2008 low.
- The wave (X) is tracing a Double Zig Zag.
- Price has established the top of the wave (A) of the second ZIg Zag.
- The wave (B) should bottom in the range of the 6 m MA = 1328 - 1258, keeping in mind that at 1273 we have the 200 d MA.
- Alt Count: Price from the October 4 low is unfolding a Double Zig Zag, hence within the wave (A) price has established the top of a wave (W), in which case the current pullback is a wave (X).
- Once the wave (B) or (X) is in place price will resume the intermediate uptrend with a potential target in the area of the 2007 top. Both options imply a multi-week correction that could last into the month of June.
- This EWP is expected to establish a major Top during the first half of 2013.
Short Term Trend:
As mentioned on Thursday: "As a reminder of the SPX's Elliot Wave Pattern location, in my opinion price has completed the 3 -wave up leg off the October 4 low. The internal structure of the first down leg from the April 2 top is clearly corrective, hence we already now that the intermediate trend remains up. Therefore, in my opinion, it is reasonable to expect that price will retrace only a portion of the 3 - wave up leg off the October 4 low. At the moment it is anyone's guess how price will achieve this correction, so far I can only highlight 3 potential EWP: 1) Zig Zag/Double Zig Zag, 2) Flat or 3) Triangle. We also have to take into account the time factor since if indeed price is on the verge of taking a breather the expected correction should satisfy some time relationship with the 6 months rally, this is why, as a guess, I have mentioned that it could take us into the month of June."
Therefore price has either completed the wave (A) of the second Zig Zag of the long term EWP or just the wave (W). For the time being in order to keep the possible path as simple as possible and judging from the EWP of several major US sectors I prefer to follow the scenario of a wave (B) pullback with a possible duration of 2-3 months and a target range = 1340 - 1273 (200 d MA).
Keep in mind that if this is the correct scenario at the moment we don't know which EWP will price unfold but the next down leg could establish the low point of the corrective pattern if price is unfolding a Flat or a Triangle.
Lets review the potential EWP of some major US indices:
- NDX: Probably it is the most complex and difficult "to read" too much from it. My best count calls for a completed wave (A) off the August lows. A wave (B) pull back is expected at least to reach the Trend Line Support 1 where we also have a weekly gap at 2547.32.
- SMH: Same idea as for SPX, therefore price is now unfolding a wave (B) pull back.
- IWM: Same idea as for SPX, therefore price is now unfolding a wave (B) pull back.
- KBE: May best count calls for a completed Triple ZZ = wave (A) off the October 4 low, therefore price is now unfolding a wave (B) pull back.
- XLE: The first equity sector to begin the correction and weakest one since it is the first one that has lost the 200 d MA. It could be unfolding a Double ZZ with a target in the 65 area.
Therefore it seems reasonable to expect a broad based correction that once it is completed it will allow the resumption of the intermediate up trend.
SPX short-term price action:
It does not happen so often to have a "crystal clear" set up such as the one that price has been unfolding from the April 2 peak:
- Step 1: wave (A) down bottoms on Apr 10.
- Step 2: wave (B) countertrend bounce in progress.
- Step 3: Wave (C) down that should at least match the length of the wave (A) = 64.80 points
Once the wave (C) is done price could complete the first part of a larger corrective EWP = wave (A) of a Flat /Triangle or a larger ZZ
Therefore in my opinion it is unquestionable that the short-term price action is bearish and a deeper setback is in the cards.
Within the assumed wave (B), taking into account that next Wednesday we have the FOMC, the short-term EWP pattern may still allow more limited upside, although so far it seems that price will have a tough time to overcome the 1398 area.
I believe that we could have 3 potential EWP:
- Triple Zig Zag: With the sequence of higher highs/lows price could be unfolding the third zig zag with a pending wave (C) up.
- Triangle (option 1): One more impulsive up leg if it does not breach 1392.75 could complete a Triangle wave (B).
- Triangle (option 2): price could be unfolding a trickier triangle that will give way to an upside thrust that will most likely challenge the 1398 resistance zone, unfolding a Zig Zag off the April 10 low. This pattern probably is the best fit if price has in the cards to rally on FOMC day. This Triangle will delay but not kill the scenario of a pending wave (C) down.
Since on Tuesday, after the close, we have AAPL reporting we better keep an eye on the NDX price reaction on Wednesday.
Here I am proposing 2 EWP options:
- Triangle wave (B)
- The wave (C) is already in progress as long as price dows not recover above 2712.
