THE CORRECTION IN NOT OVER
Despite the disparity of the potential corrective EWP between the Dow and SPX I expect more down side action within the scenario of a retracement of the November-February up leg.
As discussed during this week the two US major equity indices are not tracing the same path:
- SPX: A Double Zig Zag seems a reasonable count:
- DOW: Since it has a higher high and the following down leg has unfolded a corrective sequence, an Ending Diagonal wave (C), could fit with the internal structure that price has unfolded so far:
(Chart posted yesterday at eod on Stocktwits/Twitter)
Regardless of the correct explanation of the EWP I expect that the overlapping bounce which began at yesterday's lod to fail preferably in the range of the 0.5-0.618 retracement. I would be really surprised if bulls reclaim the 20 dma = 1511 (eod print).
Regarding my preferred long-term count, its viability depends upon if bears are able break through the September high at 1474.51.
If this is the case than the current pullback could belong to the wave (IV) ed with a potential target in the range 1459-1437.
So I am short and on a stand by mode.
As suggested yesterday due to short term oversold extremes the probability of a bounce was large.
Today I expect follow through to the upside (I am not saying bullish from opening to close, we shall see) due to:
- High Equity Put/Call ratio (CPCE):
- TLT's Shooting Star is suggesting at least some consolidation after Monday's surge, which resulted in an overstretched one-day move (Candlestick above the BB). Probably a wave (A) was established at yesterday's hod, then a wave (B) pullback should bottom in the range 118.10 - 117.13 Once the assumed wave (B) is in place I expect at least one more up leg (If this scenario is correct the RSI should not lose the 50 line during the expected pullback).
- VIX ended the day with a bearish Harami and an eod print back below the 200 dma, suggesting some follow-through to the down side for today, maybe also for tomorrow. I expect a bottom probably no lower that the 0.618 retracement of the huge long Monday's candlestick. Here also the RSI should remain above the 50 line. A reversal will be announced with a bullish candlestick.
Conclusion: Too many option equity bears + a likely pullback of TLT and VIX are suggesting that the odds favour a larger bounce of the equity market.
In the technical front I will monitor (as usual) the McClellan Oscillator, since it should maintain the sequence of lower Highs/Lows, hence it should not breach last Friday's lower high at -18.89 (Or if higher it should not recover above the 10dma).
