In my last weekend update I mentioned that:
"In my opinion despite last week's bearish reversal at the 0.618 retracement key resistance supports the "bearish case" that the counter trend bounce off the June 6 low is over, I remain skeptical and I am not going to rush in calling a trend reversal yet, for the simple reason that, if it still matters, the internal structure of the potential reversal has a deficiency for the "bearish case", since it has a questionable impulsive structure.
Therefore if the current pullback is unfolding a corrective EWP then price has not began yet the trending wave (C) down, hence the odds that price will establish a higher low (Above the June 6 low) are large."
The internal structure of the pullback off the January 19 high has mislead the bears that were looking for an impulsive decline, instead once again the down move has been corrective and price has established a higher low, therefore the only reasonable conclusion is that the corrective rebound off the June 6 low is still in progress.
I also mentioned that the overall count from the June 6 low could become a Double Zig Zag. Therefore if next week price breaks above the June 19 peak then the corrective EWP could allow price to reach the following target range:
- 0.786 retracement at 1389
- May 4 gap down at 1391.51
- A trend line that connects the April 2 top with the May 1 lower high in the area of 1398. If this trend line is breached then we have as a potential target the equality extension target for the wave (Y) at 1406.
Hence I maintain the scenario that calls for a wave (B) that will unfold a 3 -wave down leg (Zig Zag) from the April 2 Top:
- Wave (A) was established at the June 6 low.
- Wave (B) is in progress.
- Wave (C) down will follow with a potential size of 155.68 points (1 x 1 extension).
So far I also maintain that if price unfolds a Zig Zag down then this corrective EWP should establish a bottom in the range 1248 - 1207.
But since price has failed to reverse at the 0.618 retracement then we cannot rule out that instead of a downward Zig Zag price could unfold a Triangle or a Flat in which case the June 6 low has already established the low point of the corrective pattern.
The candlestick's picture is bullish with a Hammer both in the monthly & weekly time frame:
- SPX monthly chart:
- SPX weekly chart:
To sum up:
I expect that the initial counter trend bounce from the June 6 low will morph into a Double Zig Zag hence the target for the wave (B) is now in the range: 1389 - 1406.
Once the wave (B) is in place I expect a reversal with a wave (C) down with a target in the range 1248 - 1207.
In addition even if the internal structure of the advance suggests higher prices ahead we also have to monitor momentum and breadth indicators when/if price exceeds the June 19 high at 1363.46
- Daily Momentum: Stochastic has a new buy signal in place and it has room to the upside before entering the overbought zone. We should see negative divergence of the RSI when price establishes the top of the rebound.
- Weekly stochastic of the Summation Index is entering the overbought zone but it is far from issuing a sell signal yet which will warn of a deceleration of the buying pressure.
