As I have discussed in my last weekend update:
- The short-term trend is down (From the September 14 high)
"In my opinion from the September 14 high price is unfolding a Double Zig Zag.
Since the down leg off the October 18 lower high is not impulsive then the DZZ cannot be considered over, therefore I expect at least one more down leg.
The assumed final down leg could bottom either at:
- The 0.382 retracement which coincides with the rising trend line off the October 2011 lows = 1395
- In the range or the 200 d ma = 1378 - 0.618 retracement = 1346
At the moment I have a preference for the second target zone, with a likely candidate in the range of the 200 d ma and the 0.5 retracement = 1370."
This scenario requires that price has already established the bottom of the wave (a) of the second Zig Zag which implies that price will carry out a multi-day rebound with a potential target in the range 1434-1438
Given the positive divergence of the McClellan Oscillator & the RSI and an oversold Stochastic, the assumption of an oversold rebound remains capable of being accomplished.
In addition we can make the case that price has completed the down leg off the October 18 peak with an Ending Diagonal provided that bulls reclaim the 1422 resistance area:
However, since price usually does not hesitate to carry out a strong countertrend reaction once a wedge is done, it is quite disappointing that price has failed to break above the 1422 pivot resistance.
Therefore we still don't have the confirmation that price has established a short-term bottom, and as long as price remains below 1422 the risk of further action to the downside remains elevated.
If the Ending Diagonal is aborted then price could be unfolding a bearish Triangle wave (B):
Conclusion:
- Momentum & Breadth indicators are suggesting that an oversold multi-day rebound should be in the cards but yesterday's price action is questioning this prospect.
- As long as price remains below 1422 the risk of further action to the down side is elevated.
- Usually when an Ending Diagonal is invalidated it means that price instead is unfolding a Triangle
- Therefore the burden of proof remains on the bull's side.
