Yesterday with the FED announcement of an open ended $ 2 billion a day purchase ($ 40 billion x month), Mr. Bernanke should have triggered the thrust out of a Triangle wave (4).
A Triangle`s thrust usually occurs with "news" and it is the last EWP that usually leads price into a top with the final fifth wave:
Where is price expected to top?
Yesterday I mentioned that if price did not stop in the 1440-1450 area there is only "thin air" until a weekly gap at 1478.49
By moving above 1450 price has breached 2-trend line resistances that belonged to two potential wedges (weekly and daily time frame).
Usually gaps are magnets hence I would not rule out that price in the next few days will attempt to fill the gap.
Btw, this break out is suggesting that the trend from the March lows is seriously in the process of "initiating combustion" at least this is the message given by Mario and Ben.
As I mentioned during the week, I am reviewing my "long term map", with an increasing confidence that at the June lows price has established and intermediate bottom, probably the "springboard" of the last price sequence that will complete the wave (X) from the November 2008 low. I will discuss it this weekend.
Lets move on to the short-term time frame analysis.
In the daily chart below I have my new preferred count, I am not going into details, now I am only interested in the immediate time frame issues.
So if from the June 4 low we have a Triple Zig Zag in progress, off the September 4 low at 1396.56, price has initiated the last impulsive wave (Z).
This wave (Z) has a an extension 1 x 1 target at 1468.69.
I am now assuming that this top will be the wave (A) of at least one Zig Zag up.
Once the top is in place If the next move is a wave (B) it should last at least one month. The target should be located in the range of the 50 d MA = 1390 and the rising trend line from the October 2011 low which would come into play the 200 d MA = 1347.
In order to avoid just a short term pause price has to breach the rising trend off the July 24 low and the 20 d MA = 1417.
In the next chart we can see that price has pushed the eod print well above the upper BB and this is a "good sign" of an approaching top.
In addition I highlight the 3 d MA = 1344 which will have to breached at the closing bell.
Bears will have to be aggressive since in order to inflict technical damage they need to push price below the 1428 horizontal support + the rising trend line off the July 24 low and the 20 d MA = 1417.
In my opinion I doubt that we get the top today, maybe an exhaustion gap up next Monday. It would be hilarious if they hold the market up until next Friday quarterly OPEX.
Moving on to other issues, yesterday potential warning from the negative divergence of the XIV vs SPX has been erased but regarding the "fear index", the VIX is still above its August low. If the pattern is a Double Bottom then we need to see a positive divergence of the RSI.
Also the potential Ending Diagonal of the NDX is still in play.
Regarding market sentiment, judging from the following CPCE chart (Contrarian Indicator) we can see that it is approaching extreme low readings, often a market top is around.
In the technical front:
Breadth has improved:
- The McClellan Oscillator is showing a thrust without any indication of weakness
- But the NYSE Adv-Dec volume is not so strong (Not a huge volume up day).
Momentum:
- RSI is extremely overbought (it is unusual to see readings above 70). The absence of negative divergence suggests that this is not a major top.
- Stochastic is overbought.
- MACD with buy signal in play.
Have a great weekend.
