During last week negative short-term breadth indicators (McClellan Oscillator) and an overbought momentum were suggesting that the odds of a pullback were increasing. But price negated a "healthy" pause as buyers overwhelmed the few bears left in the market.
Today, in my opinion, we have to be on guard for an overdue correction since the equity market is very vulnerable. In addition to overbought readings we now have "yellow flags" coming from risk on /risk off indicators. There tons of indicators that can be monitored but in my opinion two simple ones, TLT and VIX are suggesting that the switch of Risk on might be turned off temporarily.
Regarding TLT I don't have much more to say (The idea has been discussed recently). The short-term scenario is straightforward, since price should unfold a countertrend rebound (Probably a Zig Zag).
Usually an oversold rebound of the Bonds should coincide with an overbought pullback of the equity market:
In the mean time VIX could be establishing a short-term bottom with a Double Bottom pattern. If the DB is confirmed (Eod print above 13.32) then I would expect a quick move towards the 20 d ma = 15.03.
Unfortunately SPX short-term pattern remains a mess. I don't see yet an ending pattern so I would like to see eod weakness and a move at least below yesterday's lod at 1489.90 in order to gain confidence that the up leg from the December 31 low is finally complete.
Yesterday we had another extreme eod print of Tick = 1022 (buying exhaustion?).
As you now I have been suggesting that price should be on the verge of completing the wave (a) of the second Zig Zag from the November lows.
Therefore if my scenario is correct price will unfold a corrective pullback retracing a portion of the up leg off the Dec 31 low.
Lets establish two target boxes:
- Mild correction = 1459 - 1451
- Sizeable correction = 1444 - 1434 (the trend line off the November low could be the candidate for a bottom)
The awaited pullback could last a couple of weeks.
But in order to even have bearish thoughts bears have to reclaim the previous break out level of 1474.51.
In the mean time the mentioned trend line resistance is only a few points higher = 1500 - 1505 and it would be a "sweat spot" for a reversal.
Today I will pay close attention to NDX since not only because we are having a huge selloff of AAPL but also because yesterday's candlestick is a bearish Spinning Top, which is suggesting a potential top.
Here we have yesterday's gap at 2746.19 as the line in the sand that could allow one more up leg within a bearish rising wedge (Yesterday I posted the idea on Stocktwits/Twitter) or confirm a top if it is closed by eod.
If I see reversal pattern I might go long $QID.
