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Weekly Technical Analysis

SPX has ended the month of September with "quasi" a shooting star, which is strengthening the scenario that I am working with of a retracement of the up leg from the June lows.

As I have been discussing:

  • The intermediate trend (from the March 2009 low) remains up.
  • From the 2000 Top price is unfolding a "bearish" wave (X).
  • The correct EWP of the wave (X) requires more clarification. On September 16 (Weekly Analyisis) I have suggested three possible options.
  • Since the up leg off the June 4 low is unquestionably corrective I am expecting a pull back with a target in the range of 0.382-0.5 Fibonacci retracement = 1396 - 1371 from where price will resume the intermediate up trend.

In the monthly time frame we have 4 key numbers that are expected to come into play depending upon the intensity of the current correction:

April 2012 peak = 1422.38
3m MA = 1410
6m MA = 1384
May 2011 peak = 1370.58

SPX Monthly Chart
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Before proceeding more deeply in the weekly analysis of SPX I want to digress with AAPL monthly chart. Here we can see a textbook shooting star, which is strongly warning that price has completed the up leg off the May lows.

AAPL Monthly Chart
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Maybe price is unfolding a large Ending Diagonal that could be completed during the first quarter of 2013. If this terminal pattern is playing out then price now has to overlap below 644.

AAPL Weekly Chart
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Lets go back to SPX charts

I am strongly convinced that the September's impulsive up leg has completed a Triple Zig Zag from the June 4 low. Therefore now price is involved in unfolding a corrective EWP that could carry price at least towards the 0.382 retracement = 1396.56.

Above the 0.382 retracement we have the rising 50 d MA = 1412 that could act as support, but we will have see if technical indicators are aligned with a bullish resumption, once/if we get there.

In order to accomplish "such a bearish outcome" SPX has to breach the previous break out level at 1420 and the rising trend line in force since the June lows.

SPX Daily Chart
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In the daily chart below we have useful detailed info for the short-term time frame:

  • Below Wednesday's lod we have the already discussed key levels.
  • Above Tuesday's hod we have the following key resistance levels: 1450; 10 d MA = 1452.32; trend line resistance= +/- 1455; lower high = 1467.07.
  • Friday's Hammer is suggesting that the corrective bounce off Wednesday's lod is not over yet.

SPX Daily Chart
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Short-term price action:

It is obvious that price is unfolding a corrective pattern, but as I mentioned last Friday "we have to proceed with caution since corrective patterns can easily morph, so we have the immediate time frame picture not clear."

So far from the September 14 high to last Wednesday's lod we have a completed Double Zig Zag.

This bottom cam be labeled as:

  • Wave (A) of a larger Zig Zag down ==> Now wave (B) is in progress.
  • Wave (Y) of a larger Triple Zig Zag down ==> Now wave (X) is in progress.
  • Wave (1) of a larger impulsive wave (C) down ==> Now wave (2) is in progress.

SPX 30-Minute Chart
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If price does not breach the trend line resistance then the last 2 options will be the front-runners, while if price achieves to break above the trend line (Above 1455+/-) then the first option will become the correct EWP and the wave (B) should top below 1467.

For the immediate time frame, as long as price maintains the sequence of higher lows, I take the risk of forecasting that this bounce has more upside potential with a target at 1455 since price could be unfolding a Double Zig Zag. (1455 is the equality extension target).

But the key issue here is that even if price achieves, during the beginning of next week, more follow trough to the upside, the internal structure is suggesting an obvious countertrend move, therefore the EWP from the September 14 high is not over.

In the technical front:

  • Daily RSI has bounced from the 50 line. Above we have two trend lines that are expected to cap a stronger bounce while the loss of the 50 line should result in intensifying selling pressure.
  • Stochastic is already approaching the oversold zone.

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  • So far I am expecting a mild correction (1412-1396) but if the weekly Stochastic falls below the 80 line, then SPX Trend Line support form the October 2011 low could come into play (0.5 retracement & 20 w MA = 1371).

SPX Weekly MACD Chart
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A larger correction will most likely take hold if:

  • Spanish bailout is delayed.
  • US third quarter earnings disappoint. (Alcoa kicks off earning season on October 9)

But on presidential election years, seasonality is bullish from mid October.

  • The Summation Index is now clearly in a downtrend. If the RSI crosses the middle line then a bottoming process should occur when the RSI enters the oversold zone.

NYSE Summation Index

  • The 10 d MA of NYSE Adv-Dec Volume still has room to the down side before entering the oversold zone.

Advance/Decline Volume

Next week we have an intense economic agenda:

  • Monday: ISM Manufacturing Index.
  • Wednesday: ISM non-Manufacturing Index & First Presidential Debate.
  • Thursday: ECB meeting & FOMC Minutes
  • Friday: US Employment Report.


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