During this week I have been clearly shifting my bias to the bearish side.
Major Reasons:
- A potential complete EW count off the June 4 low
- Reversal of momentum indicators from overbought readings
- Weakening of the McClellan Oscillator
By the way yesterday the Oscillator has issued a sell signal by crossing the zero line with a bearish cross of the MA.
Today I add to the list:
- Reversal of Crude Oil (It usually maintains a positive correlation with SPX).
- Kick off of a likely pull back of EUR.
- Troublesome divergence of DJ Transports and SMH.
Yesterday I mentioned that we are in a short-term waiting game since the internal structure of the pull back still favors the bulls since we ONLY have a 3-wave down leg, and we all know that until now every single corrective pull back has been ALWAYS aggressively bought.
But an apparently corrective harmless pattern can morph into a larger correction if we see more conviction by the bears.
Keep in mind that what I am talking about is a potential correction phase and not a major reversal.
Yesterday I mentioned that an impulsive down leg could have shifted the trend to the down side. We got the impulsive down leg but without any follow through. Instead OPEX players aggressively bought it?
The eod picture looks bullish with a nice daily hammer, but if we analyze the internals of the move we can see that rebound off yesterday's lod is not impulsive, therefore EW wise bulls are failing to take advantage a bullish friendly EWP.
So if price is unable to rise with an impulsive move it should mean the price is now involved in the initial stages of a potential larger correction.
So far we have a 3-wave down leg that can be labeled as wave (A) of a larger Zig Zag or wave (W) of a Double Zig Zag.
Hence the corrective looking rebound in progress should be a wave (B) or (X) that may or not reach the September 14 "potential short term Top".
In my opinion we have the gap at 1465.77, which if it not closed then the resumption to the down side could be a matter of 1 - 2 days at the most and we will have a Lower High.
If the sequence of higher lows/highs shifts to lower highs/lows then we will have the confirmation that a correction phase is in progress.
Regardless of this short term issue (Lower High or Double Top) looking down the next support is located in the area of 1440 - 1438.
In addition we have to consider that once/if we have the official kick off of the correction price could retrace the 0.382 Fibonacci of the June's up leg = 1395.
Today we have Quarterly OPEX and the statistics is overwhelmingly favoring the bears: Since 1990 the week after the September opex has been positive ONLY 4 years. Will Ben instruct his generals to abort the bear's chance?
Have a great weekend.
