Yesterday SPX achieved another marginal new high during the first hour of trading and then it slid during most of the day although by eod bulls attempted a recovery.
This price action formed a 3-wave down leg, which obviously does not give any reversal argument to cheer up for the bears, but if the pattern that I am following (The Ending Diagonal option) is correct, it could be the first step for a shallow wave (IV) pullback.
So far every single 3-wave down leg has been bought and new highs have been achieved, if this time is different then maybe a larger Zig Zag down could trace the wave (IV) of the assumed Ending Diagonal. If price unfolds a Zig Zag down the missing wave (C) down should at least extend 8.76 points.
So this is the moment of truth for my short-term scenario, as today it badly needs a lower high.
If the ED is playing out then yesterday's hod has to be the wave (III). Now I need a corrective wave (IV) pullback that has to breach the wave (I) peak at 1514.41.
The potential target for the assumed wave (IV) is located at the 10dma = 1511 +/-.
Once/if this scenario plays out then the missing wave (V) will have to be shorter than 26.20 points (The wave V of an ED has to be shorter than the wave III), probably it could top in the area of 1330-1335.
Maybe the ED could be done by next Friday's OPEX day
I hope that this is what price has in mind otherwise I would be left without a coherent alternative.
If the ED pans out then, in my opinion, it would establish the top of the corrective up leg from the November 16 low opening the door to a multi-week correction with a potential target in the range 1464-1434 (This would bring forward the larger Ending Diagonal scenario that I have been discussing lately regarding the long-term EWP).
How can I take advantage of this potential scenario?
As you know I am already long SPXU, I should have closed the position last Thursday when SPX dropped to 1498.49, but I was on the way to Baqueira for a long weekend skiing break. So now I am trapped and even if this is not what a disciplined trader should do I will probably keep them, maybe doubling the position during the expected SPX wave (V) ed.
FAZ should offer another potential swing trade set up based upon XLF's same scenario discussed for SPX.
I am also watching VXX since it is obvious that if SPX embarks in a multi-week pullback volatility will rise.
Here we could have price forming a bullish falling wedge. If this is the case once/if it pans out I expect am upward thrust.
In Europe I am looking at the DAX or Euroxx for a long swing trade with a 2x short etf.
I am also monitoring FXY as I expect a large countertrend rebound of the Yen.