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SPX: Follow Up of the Short Term EWP

Fiscal Cliff is the name of the game.

Good news hits the tape = Market goes higher.

It seems obvious that some type of an agreement will be sealed before December 31 and consequently SPX will most likely follow the bullish seasonal script of the last 5 trading days of the year + first 2 trading days of January.

Therefore even though I maintain the idea that the November up leg can unfold a bearish wave (B), we will have to wait until the first week of January in order to determine the most likely scenario based upon wave counting + sentiment + breadth & momentum indicators.

Hence the bias is clearly up until technical evidence shifts to the bear's camp.

On Sunday I mentioned: "SPX ended the week with a bearish Shooting Star, which does not give any bullish vibration at all. This candlestick indicates that bullish momentum is running out of steam. Price is clearly capped between the resistance at 1434 and the pivot support at 1398. However, even though I cannot rule out that SPX may be vulnerable for more short-term weakness, both the internal structure of the November up leg, which in my opinion is not complete yet and the clear corrective nature of the current pullback increase the odds that price during the current pullback will bottom above the pivot support located at 1398."

Yesterday's rally reaffirms that price has not completed yet the corrective up leg off the November lows. As you know in my opinion price is unfolding a Triple Zig Zag, hence if this count is correct, and if yesterday's lod has established the end of the pullback from the December 12 peak then price has began the "last" wave (C) of (Z).

However I underline the second if since in my opinion yesterday's up leg is a doubtful impulsive move. If this were the case then price may delay a bit the kick off of the "last" wave (C) with a flat or a triangle.

Below in the SPX 60 min chart I show the Triple Zig Zag count that I am following.

SPX 60-Minute Chart
Larger Image

Conclusions from this chart:

  • The Triple Zig Zag count is missing the last wave 11
  • If at yesterday's lod we have the wave 10 then the equality extension target is at 1451.87.
  • The corrective pattern could be shaping a bearish rising wedge, in which case the if it is confirmed then price will most likely not achieve the 1x1 extension target.
  • It is not clear yet that the wave 11 is in progress hence a small flat/triangle is possible.
  • 1398 remains the pivot support.

Next in the SPX daily chart we have the bigger picture of the pattern from the September top. I have added a new Trend Line Resistance #2 that should cap the assumed wave (B).

Therefore after yesterday's price action the 50 dma should now be unbreakable by the bears (Until next year) while above I expect that eventually bulls will be able to carry SPX above last Wednesday peak = 1434.27.

A reasonable target, if this move is the assumed bearish wave (B), should be located in the range of 1446 - Trend Line Resistance # 2 (1455 +/-)

Yesterday's Marubozu candlestick is suggesting that today we should expect a consolidation internal structure that could result in a small range body.

SPX Daily Chart
Larger Image

Going forward into year-end I suggest monitoring NDX, since equity bulls badly need an improvement of the dangerous underperformance of the technology sector.

Here bulls have a lot of work to accomplish in order to repair serious technical damage that has been inflicted:

  • Bearish cross of the 50 dma below the 200 dma.
  • Price is below the 200 dma.
  • Huge resistance at 2699 (Trend Line Resistance + Bollinger Band) and at 2731 (0.618 Retracement).

From the November 16 low price could be attempting to unfold a Zig Zag:

If at yesterday's lod price has established the bottom of the wave (A) the theoretical 1x1 extension target = 2824.74 (I have serious doubts that it can be achieved).

NDX Daily Chart
Larger Image

Lastly SPX momentum indicators have not confirmed yet the kick off of the Santa's rally since the Stochastic has not reversed yet the sell signal issued last week.

Now we have to monitor the RSI Trend Line Resistance off the September high and the peak = 61 established last Wednesday, since if the RSI breaks above it a top will be delayed until we see a negative divergence.

SPX Momentum Chart
Larger Image

Also recall that we have quarterly OPEX next Friday, hence we cannot rule out "fake-out" moves.


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