BULLS NOW NEED AN IMPROVEMENT OF BREADTH INDICATORS
The answer to my last weekend update's title is: Friday's hammer has been the prevailing candlestick.
So the potential reversal pattern I suggested on Sunday has been aborted, thus the scenario that was calling for a completed corrective up leg from the November lows is now grasping at straws.
Moreover in the case of the Dow it is now unquestionable that price has not completed yet the corrective up leg at the February 19 high with an initially thought Double Zig Zag instead, as I suggested on Sunday (This was not my preferred scenario), the EWP seems it will extend higher with a Triple Zig Zag.
If this is the case then from the February 25 lod price will unfold another Zig Zag higher (Now we are in the wave A).
Bears have failed but now bulls badly need an improvement of the breadth indicators in order to propel the market (SPX & DOW) higher, probably as suggested, with another Zig Zag up.
Therefore going forward the McClellan oscillator is probably the best gauge that will dictate over the sustainability of this incipient likely new up leg.
Why?
Because if the McClellan Oscillator turns positive it will most likely allow the Summation Index to issue a new buy signal that will propel the equity market to new highs.
So for the time being the Summation Index has the sell signal switched on:
But if the McClellan Oscillator gains traction above the zero line then it will only be a matter of time before the Summation Index triggers the buy signal:
Regarding the immediate time frame (Next few days) the Stochastic, which is overbought, could trigger a short-term pullback.
Therefore if SPX is going to adhere with the suggested pattern of the DOW, from last Tuesday's lod price should be unfolding the wave (A) of the "last" Zig Zag up. Hence going forward, barring a Triangle, as long as the last higher low at 1501.48 is not breached I have to consider that now the probability of achieving higher prices is larger than the probability of a reversal.
Regarding the short-term price action, the internal structure of the current up leg (From last Tuesday lod) is unquestionably corrective, which is in agreement with the suggested wave (A).
So far, in my opinion, the pattern suggests that price is unfolding a Double Zig Zag, therefore the key segment of this pattern is the assumed Zig Zag in progress from last Friday's lod.
So we have two potential equality extension targets for the assumed wave (A):
- Zig Zag from last Friday's lod: (C) = (A) = 1530.80
- Double Zig Zag from last Tuesday's lod = 1541,81
The immediate pivot support is at 1512.29.
Going forward I am going to watch:
- If VIX will show a divergence with SPX (A new higher high of SPX and a higher low of VIX) in order to gauge the sustainability of SPX higher highs.
- TLT, since so far the pattern is not aligned with the SPX resumption of the up trend off the November lows.
Regarding the preferred SPX long-term count, the assumed bearish wave (X) in progress, remains unchanged but the option of the Ending Diagonal is now in quarantine until we have a confirmation the up leg from the November lows is over.
