The expected wave (B) pullback has been confirmed. If the count that I am following is correct once this correction is over, which I expect to be a shallow one, price will complete the Double Zig Zag off the November lows with the last wave (C) up that will most likely breach the September 14 high.
As I have already mentioned the chances that price is still unfolding a corrective pattern from the September high is almost nil, instead I am working with the two Ending Diagonal options discussed in my last weekend technical update.
The obviously corrective internal structure of the current pullback is a confirmation it will not endanger the up trend from the November lows.
Therefore in the SPX daily chart below we can see my preferred short-term scenario:
- Pullback wave (B) with target in the range 1443 - 1434
Followed by
- Wave (Y) up that will complete the first segment of either the wave (III) or the wave (V) of the two potential Ending Diagonal options. The pending wave (C) up could reach the 1500 area.
In the SPY daily chart below, given the huge January 2 gap, I can establish two potential targets:
a) Horizontal support & 0.382 retracement = 143.92/143.77
b) Gap fill at 142.41
In order to expect a move towards the gap fill we need to see the daily Stochastic reach at least the 80 line, btw it has not issued yet a sell signal.
Also a move towards the lower target range is possible only with a worsening of the McClellan Oscillator.
Here I will be watching the 80 line of the stochastic.
Regarding the short-term pattern
We know that:
- Price is in corrective mode.
- More upside should be expected once price completes the corrective EWP.
I don't know yet the exact EWP as it can easily morphs and extend lower.
So far I can make the case that we either have 6 -wave (one more down leg would complete the correction = shallow one) or a 4 -wave down leg in which case one more Zig Zag down is needed.
Given the overlapping bounce off yesterday's lod I would be very surprised that price has already established the bottom of the wave (B)
Also in addition to the choppy bounce the absence of positive divergence in the NYSE Adv-Dec Volume increases the odds that price will unfold at least one more down leg.
