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SPX: Follow Up of the Short Term EWP


Despite Thursday's bullish action, in my opinion there is something odd about it, all the momentum & breath bearish reasons remain in force.

In addition, I can think of at least 2 major developments that should deter the kick off of a new up leg of the equity market (Not yet).

  • The EUR has a correction underway off the February 1 top (wave A). The EWP is corrective therefore it should be a wave (B), but it is not completed. There is a H&S with a target at 1.2881 while the 200 d ma stands at 1.2838. So far there has been a disconnect between the EUR & the equity market, but further weakness of the EUR could increase the probability of a realignment with equity markets giving back some of the gains.

Euro 120-Minute Chart
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  • TLT: The pattern that TLT is forming is not in agreement with an equity bullish scenario. In my opinion here price is unfolding a wave (B) corrective pattern that should open the door to at least one more up leg off the February 20 low.

TLT Daily Chart
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Yesterday's selling into the close (usually it is Institutional selling activity) could be a concern for the bulls. The eod sell off has left in the daily chart a Shooting Star candlestick. I know that so far bearish candlestick usually fail but maybe this time could be different since not only bulls have failed to break above the last lower high (keeping the sequence of lower high/lows in force off the February 19 high but because off yesterday's hod ES Globex has unfolded an impulsive down leg. Keep in mind that an impulsive decline can trigger a trend reversal.

ES 15-Minute Chart
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(Chart posted on Stocktwits/Twitter this morning at 6 am CET)

Lets go back to the daily time frame. In the chart below we can see that if yesterday's hod is not breached and bears today achieve en eod print below the 20 dma (With an impulsive decline) MAYBE price would confirm that from the February 19 a corrective pattern is already underway.

SPX Daily Chart
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Therefore the scenario that I have been following which calls for a corrective pullback with a potential target in the range 1459 - 1437 can still pan out if:

  • Step 1 = Price remain below 1525.84
  • Step 2 = Impulsive decline (Much better if eod print below is 20dma)

In the SPX 5 min chart below I have labelled as a corrective Zig Zag the up leg off last Monday's lod (Though it is not written in stone) What is important now for the bears case is an impulsive decline off yesterday's hod therefore with a 3-wave decline it is a MUST not to overlap above 1519.29.

Keep in mind that an impulsive decline, which follows a corrective up leg, can be the initial step of a reversal.

SPX 5-Minute Chart
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  • Step 3 = Break down of support layer 1485-1482
  • Step 4 = Break down of critical support at 1474.51

So at the moment plenty of tasks to be achieved.

Regarding the EWP so far unfolded off the February 19 high, if yesterday's "failure" is confirmed, price could be involved in forming a Double Zig Zag or a Zig Zag down.

SPX 30-Minute Chart
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It should not be a coincidence that SPX Shooting Star is complemented with VIX's Hammer. Bullish candlestick + above the 20 and having reclaimed the 50 dma may suggest a serious bottoming attempt (In addition the RSI has not breached the 50 line).

VIX Daily Chart
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In the technical front NYMO, which has remained below the zero line, has to confirm the potential reversal set up with a bearish cross of its Stochastic (A strong down volume is required).

I am not sure if this weekend I will post the weekly technical update if I don't and the SPX confirms the reversal then what I have written last Sunday could pan out. http://www.thewavetrading.com/2013/02/24/weekly-analysis-0224/

Have a great weekend.


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