After reaching on Thursday a level pretty close to our target zone for a major top before a sharp correction (leading the market to at least 1200 on the SPX), the market declined on Friday.
This decline is not a surprise for us, but we are not convinced the major top is in place.
So, once again, we want to analyze two different scenario:
- the market find some support on Monday (around current levels) and climb up to our target zone
- the market is not able to move into our target and break through our warning area (see chart)
Which scenario do we prefer?
At this stage, we don't have any preference because:
- We can notice a doji on Thursday (green box), and we can also notice that in recent past, this figure occurred prior to important decline (good for 2nd scenario)
- We have a confirmed negative divergence on the Breadth Index (see chart below) (good for 2nd scenario)
- According to the wave structure, Thursday afternoon and Friday's move looks like a 4th wave (good for 1st scenario)
- As long as the market is above the bottom end of the warning area, it remains a possibility to reach our preferred target zone.
Looking at the Breadth Index, we can notice a confirmed negative divergence (higher high on price vs lower high on Breadth) which is an important warning signal for the market (warning signal, no more).
In order to get a confirmation of the trend reversal, we need two consecutive closes in negative territory.
Looking at other indicators, we can notice that the Sigma Trend Index (STI) declined from '10' to '1'. This is an important decline, but as long as it remains above the zero line, it is too early to say that a trend reversal is in place.
It is important to notice that the swing indicator is at '2', telling us that Friday's move could be impulsive.
Conclusion:
We have early signs that the major top could be in place (confirmed divergence on the Breadth Index), but it is too early to consider this scenario as the main scenario.
So, we keep our short term long positions but we introduced stop orders around our breakeven level (on aggregate basis).
For those of you interested in our intraday move, you can visit our site during the day: we post all our trades in real time. You can also subscribe to our twitter account (@SigmaTradingOsc), it is free and you are updated on our latest view/trades.
Current positions:
Medium term positions:
- short 2 SPX at 1336.99
- short 1 NDX at 2578.46
Short Term positions:
- long 1 SPX 1363.23 (stop at 1356)
- 1/2 long NDX at 2585.95 (stop at 2605)
