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SPX: Follow Up of the Short Term EWP

As I have discussed recently I had compelling reasons to expect a multiday-pullback:

  • Potential bearish rising wedge.
  • Negative divergence of breadth/momentum indicators and an extremely overbought daily stochastic.

Regarding the wedge formation that on Wednesday seemed almost complete, yesterday it was brutally busted. Hence instead of a sharp decline bulls achieved an unexpected opposite demolishing move.

Usually when a wedge is aborted the consequent thrust is originated instead from a Triangle, therefore it can still be considered an exhaustion move, but even if this idea is correct at yesterday's hod I have no idea if the exhaustion move is over.

Below in the 15 min SPX chart I show a possible interpretation of yesterday's price action.

SPX 15-Minute Chart
Larger Image

So at the moment I can only say that since there is no confirmation that yesterday's thrust is over, today we need follow through to the down side with the loss 1476 (0618 retracement) in order to begin considering complete the overlapping 3-wave up lag off the Jan 8 low, while now 1451.64 is the pivot support.

Given the corrective internal structure of the up leg from the December lows I have to modify the short-term count, hence now probably price will have to unfold a Zig Zag from the Dec 31 lod, then the next pullback will not present a threat to the trend from the November lows hence it will be eventually bought once again in order to complete the wave (Y).

Below I show a possible scenario assuming complete the thrust out of the Triangle. The wave (B) pullback would have a potential target box in the range 1452 - 1431 while the theoretical extension target for the final up leg of the DZZ form the November low is located at 1498.

SPX 45-Minute Chart
Larger Image

This scenario is strengthened by the RSI higher high since in order to consider complete the up leg off the November lows we should see a negative divergence.

SPX Momentum Chart
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In the mean time the McClellan Oscillator keeps flashing heads up with a persistent negative divergence:

NYSE McClellan Oscillator Chart

In the SPX daily chart I highlight the important #s.

If price will soon unfold a wave (b) pullback then probably the target could be located at the January 8 low where we also have the 20 d ma.

SPX Daily Chart
Larger Image

Enjoy the weekend (A long one for the US readers, since on Monday markets are closed).

 

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