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.
- McClellan Oscillator: It has issued a new sell signal by crossing the zero line (in addition to a bearish cross of MA). The trend line in force since the July low may allow a bounce, but it is obvious that despite SPX is not breaking down yet, this breadth indicator is getting damaged.
- Momentum Indicators are also suggesting a possible top:
a) Stochastic has a bearish cross in place and so far it has failed attempt to reverse the sell signal. The loss of the 80 line should accelerate the selling pressure.
b) RSI has breached the September trend line. If we have a trend reversal the upper trend line should not be breached, instead it should be heading towards the trend line support in force since the June lows.
c) MACD should join with a sell signal.
Despite Central Bank stimulus schemes that are attempting to offset week global economic fundamentals by artificially raising equity prices, momentum and breadth indicators are suggesting that the up leg from the June 4 low is over.
If this is the case then price should enter a consolidation phase that should maintain a proportion time & price wise with the up leg off the June lows, which should bring into play the 0.382 retracement = 1395.
As we can see in the daily chart below, price has plenty of support layers that can become selling stops, but until the 20 d MA = 1435 is not breached the 0.382 retracement is at the moment an ambitious target.
In addition the internal structure of the pull back off the September 14 high is clearly corrective but it could morph into a larger EWP.
So far we have a potential Double Zig Zag in progress. If price breaches 1450 then the pullback should gain traction to the down side with a potential target in the range 1440 - 1429.
For the immediate time frame the rebound off yesterday's lod is overlapping hence the trend is signaling to the down side.
NDX with an impulsive up leg off September 5 higher low should also have completed the up leg off the June 4 low.
If this were the case yesterday's gap down should not be closed while a move below 2829.73 would be the confirmation that the short term trend has reversed to the down side.
