Yesterday bulls removed the uncertainty regarding if price had completed a bullish falling wedge or if it was unfolding a bearish triangle wave (B).
Bulls reclaimed the pivot resistance at 1422 with strong technicals.
So now we have the confirmation that price has established a short-term bottom (Assumed wave A) hence price should carry out a multi-day rebound wave (B) with a theoretical target in the range 1433 - 1441.
Once the wave (B) is in place I am looking for a wave (C) down which should at least match the 60.74 points drop of the wave (A). In other words I am expecting a Zig Zag down from the October 18 peak.
The assumed Zig Zag could establish the bottom of the corrective pattern from the September 14 high.
Now lets go back to the wave that is now underway.
Where will it top?
As it is always the case we need:
- A completed EWP
- Negative divergence of short-term breadth/momentum indicators.
- An exhaustion move which should be detected by a bearish candlestick
- Low TRIN, high Tick, low CPCE etc.
I am going to follow SPY, establishing a wide target box, which encloses in the lower range a gap at 145.09, and in the upper range a kiss back at the June's trend line.
If bulls are able to brave the potential "storm" of today's NFP release then given the fact that next Tuesday we have the US presidential election, then probably price will establish the top of the current countertrend rebound by the end of next week.
In the technical front:
- Upward thrust of the McClellan Oscillator, which is back above the zero line. Yesterday's print is at the trend line resistance. If the trend line is breached the next resistance is at the October 17 peak. Pay attention to the stochastic, which has crossed the signal line and is still far from the overbought zone.
- Daily stochastic has crossed the signal line. We have to monitor the RSI, which is not expected to breach its trend line resistance during the assumed wave (B) rebound.
As you when we have directional move in progress, which is expected to be a countertrend wave, I always watch VIX in order to have clues regarding the longevity of the move.
Hence now we have to wait for a reversal candlestick, which may take a few days since downside inertia usually takes some time to mitigate.
Here the obvious support is located at the 50 d ma = 15.90 & lower trend line of a potential large Bear Flag.
The etf that I am also going to watch closely is XIV since the pattern from the October 18 top rarely could be just one leg down hence it substantially strengthens my call that SPX's rebound will eventually fail.
Have a great weekend.
