Today I am posting just a brief update since I want to wait for "the dust to settle".
In the weekend technical update I mentioned that on Friday the US equity market ended the week with extreme "bearish" readings of short-term breadth indicators + Thursday's White Marubozu + having reached the 0.5 retracement of the corrective pullback off the September high were increasing the odds of a potential pullback.
Yesterday's initial weakness was aborted by dip buyers but the recovery action was overlapping and by eod SPX ended with a confusing candlestick, since it can be considered a "bearish" Harami or a bullish Hammer. In addition we cannot rule out that today's euphoria due to the Eurogroup deal to save once again Greece may spill over into at least the opening of the US markets.
The good news is that we have new price information:
- The internal structure of the price action off Friday's hod is corrective; hence we already know that if a pullback is underway it will "only" retrace a Fibonacci # of the move off the November 16 low.
- The scenario of at least a Zig Zag up is now the frontrunner short-term option.
- I assign an almost zero probability that this move belongs to just an "oversold" bounce. Therefore as long as I don't see impulsive downside action with bears reclaiming the 1377 area I will be put on quarantine the bearish scenario of an unfinished pattern from the September high. In addition breadth & momentum is not aligned with bearish ideas.
Therefore I now have two options:
-
Price is unfolding a wave (B) that can either fade in the range 1425 - 1433 within a larger Zig Zag down or fully retrace the September 14 - November 16 pullback within a large Flat.
-
Price has established a major bottom. If bulls are able to maintain the sequence of higher highs/lows then price will have resumed the intermediate up trend within the "bearish" wave (X).
Regarding the immediate time frame pattern, hopefully today it will be solved and by eod we should know if the first up leg of the assumed Zig Zag up is over.
I still believe that a pullback is more likely than an extension higher.
But if bears don't show up then there is only "thin" air until the 50 dma = 1426.
The "ideal" path would be a retest of the 200 dma = 1383 from where a wave (C) up could reach the 1449 area.
