As we wrote during the week-end:
"After Thursday's selloff, the market achieved a small pullback, retesting a key resistance. We believe this move could be a 4th of 1. Then we should have a lower low early next week followed by 3 to 5 days of consolidation. A sharp decline should start (3rd wave) after this consolidation."
We believe we are in this consolidation phase. It looks like the SPX retrace between 38.2% and 61.8% of recent decline. So, the target zone for current move is 1329-1342.
Looking at the CAC40, the same retracement gives a target zone between 3060 and 3096. Nevertheless, as the CAC40 has been one of the weakest index on a ytd basis, we don't believe that 3096 is achievable in this bounce back.
It looks like 3060-3080 is more in line with CAC's internal dynamic.
Looking at our indicators, we can notice that the Sigma Trend Index (STI) is once again testing the zero line. Other indicators are neutral at '3' (1 = oversold level, 3 = neutral, 5 = overbought level)
Looking at the Breadth Index, we can notice that the index (red line) remains in negative territory:
We stick to our view that a sharp decline should occur next week.
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- short 1.5x std size SPX at 1336.48 (stop loss 1350)
- 1/2 short SPX at 1316 (take profit at 1302)