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Daily Analysis

Yesterday I thought that the EUR, given the overextended move (from the May 1 peak), and the extremely oversold readings of the daily Stochastic and RSI, price could have bounced from the last support line left above the January lows in the area of 1.2800

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This was not the case. Price now is so close to the 1.2622 January's low that it seems inevitable a test and at the same time it is so oversold that at least a relief bounce is something to seriously consider.

Conclusion this is a tough call for the immediate time frame, but even if price is able to achieve a multi day bounce in my opinion the odds are larger for further weakness as long as price does not recover above 1.2979

I have lost confidence of my preferred count. The EW structure of the down leg off the February top remains corrective, but unclear to me.

In addition to the Triple ZZ option that I was following I add the option of a complex Zig Zag (ABC = black count), aligning it with SPX potential scenario.

Given the direct relationship between EUR & Equity market, I feel uneasy since I am aware that unexpected and sudden "news driven rebound" can occur.

It is obvious that with the failed rebound of the EUR the equity market had a zero chance to succeed in constructing a short-term bullish pattern.

I have no doubts regarding that SPX is unfolding a corrective pattern from the April 5 top.

The loss of the 1340 pivot support clearly opens the door for a move towards the range 1300 - 1277 where I suspect that price could establish an important bottom.

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The question is which EWP will price undertake?

So far it seems reasonable to consider a Zig Zag, with price now embarked in tracing an impulsive wave (C).

Before looking at the potential short-term options I cannot look down to the fact that:

  • Daily RSI (5) is extremely oversold

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  • NYSE 10d MA Adv-Dec Volume has crossed the oversold line and it is approaching readings that occurred with an SPX bottom in late November or the October 4 low.

Therefore, despite price is still far away from the potential target box, I cannot rule out that a rebound could be in the cards.

But it is also a fact that the loss of an important technical support has inflicted a serious technical damage.

Yesterday I mentioned that for the immediate time frame price had two options:

  • Embark in a "crash mode" with a "killer" wave (III) of (3) down.
  • Undertake a recovery attempt with a wave (2) relief bounce that may reach the 1366 -1375 resistance area

With the failed recovery attempt we have to respect that price could be on the edge of a "cliff dive" if finally price unfolds a 5 -wave down leg from the May 1 peak.

Regarding the potential short-term EWP I am considering two options:

  • Zig Zag (ABC), in which case price has began on May 11 the wave (3) of (C).

This is a "Perma bearish count" that would result in a market crash, since the wave (3) would most likely drop below 1298 and could extend lower.

It is possible and it has to be respected

For the immediate time frame it can pan out as long as price does not recover above 1340.86

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  • Double Zig Zag, in which case price is now unfolding the wave (A) of the second Zig Zag.

If this scenario plays out then price has to unfold a 3-wave down leg off the May (1) peak.

SPX will not establish an "important bottom" since after the wave (A) it comes a rebound wave (B) followed by the last impulsive wave (C) down but it could be aligned with the oversold readings that are suggesting that a bounce is due.

The "foundations" of this option are based upon a potential Triangle wave (B), which has opened the door of an impulsive down thrust wave (C).

If this is the correct path then price has to unfold a 5 -wave down leg off the May 11 peak.

The projected target is at 1298

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So the above are only "ideas", I am sure that there might be other options, but in my opinion both are feasible.

Therefore as long as today price does not recover above 1340.86 I am expecting more down side action.

More price information is needed in order to increase the confidence on a particular count BUT in my opinion the odds for more down side are larger than an immediate bottom and reversal.

I also think that if fear provokes a "panic" decline then the odds of a tradable bottom will increase substantially.


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