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Weekly Technical Analysis

All week long I have been suggesting that probability that SPX on September 14 has established the top of the up leg from the June 4 low is quite large.

As I mentioned on Friday the major reasons of my bearish stance are:

  • EW count that allows considering that the pattern from the June 4 low has ended.
  • Reversal of daily momentum indicators from overbought readings.
  • Substantial weakening of the McClellan Oscillator.
  • Reversal of Crude Oil.
  • Kick off of a pull back of the EUR.
  • Troublesome divergence of the DJ Transports and SMH.

Lets begin this weekend technical update with a look of what is going on in the DJTA and SMH.

We all know that one of the basic elements of the Dow Theory is that in an up trend DJTA has to confirm the new highs achieved by the DJIA. When this fails to occur it is considered a "red flag" for the sustainability of the price trend.

In addition here we have a bearish cross of the 50d & 200d MA and price from the September 14 peak has collapsed. In my opinion the odds are very large that price has began an impulsive sequence to the down side.

In the chart below we can see that the DJT, from the June 4 low, has been not capable to overtake the May top. Instead it has been engaged in a large and complex corrective patter that may have been completed on September 14, coinciding with SPX daily shooting star. If this is the case then price from the May top should be involved in unfolding a Zig Zag down.

Dow Transports Daily
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Semis (SMH) have also the same problem. I don't think that this huge divergence with NDX can be maintained much longer.

Like in case of DJT here we also have a bearish cross of the 50 d & 200 d MA and last week price has broken down with a large gap losing both MA. Next week, Thursday's gap down = 32.63 should not be closed if the trend is now down.

SMH Daily
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Remaining in the technology front it is obvious that we need a terminal pattern of AAPL in order to consider feasible a reversal of NDX.

Maybe we do have one, although so far the Ending Diagonal ideas are not panning out.

Apple 15-Minute Chart
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Lets move on.

We have a weekly bearish Harami in several important equity indices. The one that clearly stands out is KBE (btw this one also has not been able to achieve a break out above the March top).

An Inside week candlestick (Harami) can be considered as a warning of a sudden deterioration of the trend. The probability that the trend is about to change is very large.

KBE Weekly
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In the case of SPX, the weekly Harami is not strongly marked, but the previous week candlestick can be considered an exhaustion bar (eow print above the upper BB).

SPX Weekly
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As I have mentioned several times last week, the internal structure of the pullback "per se" does not offer enough confidence that a reversal is in progress, therefore we cannot rule out a Double Top or even a marginal higher high, but the deterioration of daily momentum indicators and the McClellan Oscillator are rising the likelihood of an imminent correction phase.

I have no idea of the potential target since the action of the FED has busted a logical path and now we have to deal with the consequence of a corrective up leg that we have to fit within the large countertrend move from the March 2009 lows. Last week I suggested 3 possible options. For the time being I maintain that:

  • At the October 2011 low we have the wave (X).
  • Therefore price is now involved in the second Zig Zag up.
  • The correct location of price within the ZZ is not clear.
  • But since the up leg from the June 4 low is corrective I rule out that price is establishing a major top.
  • Hence I am expecting only a retracement of the June's up leg establishing as a potential target the range of the 0.382 -0.5 retracement = 1396 - 1371 from where price will resume the intermediate up trend.

In the daily chart below we can see that:

  • Friday's Shooting Star could have ended a small sideways move but only if price breaks below last Thursday's lod at 1456.13 we will have the kick off of a larger correction.
  • Once the correction is in progress in order to confirm that the up leg off the June 4 low is over price will have to breach the 20 d MA = 1432.
  • Then a potential bottom can occur anywhere from 1422 - 1371.
  • In the worst case scenario the rising trend line from the October 2011 lows should be capable of holding the expected down leg.

SPX Daily
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VIX once again has to be closely monitored for clues.
The negative divergence (for the equity) is still in place.
The lower horizontal Trend Line that is in force since the April 2010 lows is a huge support.

Maybe there is a bullish falling wedge almost done.

VIX Daily
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In the technical front:

  • The RSI and Stochastic of the Summation Index are overbought. The Summation Index usually follows a cycle marked by the stochastic from overbought to oversold. A bearish cross of the stochastic will issue a sell signal.

NYSE Summation Index

  • The weekly Stochastic of the Summation Index, which still has a bullish cross in place, along with the corrective pullback of SPX off the September 14 potential top are the major concerns. In other words so far we cannot rule out that SPX may establish a Double Top or a marginal higher high.

NYSE Summation Index Weekly

Daily Momentum. We already have a sell signal issued by the Stochastic but the loss of the 80 line is needed. The RSI has already breached the September Trend Line. If the scenario of a correction plays out then the RSI should be heading towards the June Trend Line.

SPX Momentum
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As I mentioned on Friday: 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?

I have an issue with Feedburner, the Google application that sends the new posts by e-mail to subscribers. Therefore I cannot guarantee that you receive new posts regularly. I usually post on the web site the weekend technical analysis on Sunday at 20:00 (CET), while daily updates are posted at 13:00 (CET).


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