DOW: THREE CONSECUTIVE DAYS ABOVE THE BOLLINGER BAND
- The DOW is short term overextended: Three consecutive trading days with the eod print above the BB + 2 consecutive days with the entire body of the candlestick.
- Breadth and Momentum indicators are short-term overbought:
1. The stochastic of the McClellan Oscillator is overbought.
2. The daily stochastic of SPX is overbought and the RSI is approaching the trend line resistance in force since the January peak. But the MACD new bullish cross forebodes higher prices ahead.
Therefore the odds favour a pullback, BUT the improvement of longer-term breadth indicators are suggesting that despite the DOW is at an all time high the assumed wave (X) from the 2009 lows is far from being over.
I am reassessing the potential long-term pattern. For the time being I expect that price will unfold a large Zig Zag up from the November 16 lows (Now we are in the wave (A) maybe this ABC up could be the wave (I) of a large Ending Diagonal.
As you can see the Summation Index has issued a new buy signal. Usually a buy signal lasts until the RSI enters the overbought zone (And it can remain overbought a long time).
But breadth and momentum are not the only bullish arguments.
- In the currency front:
1. The potential reversal pattern of JPY has failed which means Global Risk remains ON.
2. The EUR yesterday has established at least a short-term bottom (There is a Double Bottom target at 1.3187). Here the current rebound could be the wave (X) of a Triple Zig Zag with a potential target 1.3164-1.3268 or a wave (B) in which case it could retrace up to 1.3434.
Yesterday afternoon I posted on Twitter/Stocktwits this chart (I have added the wave B option):
(Price is not updated).
- In the Bond front the TLT short-term bullish pattern (Zig Zag up) has been seriously damaged. Now the odds that on February 20 price established a sustainable bottom have decreased. The last chance is a Double Bottom; otherwise the intermediate down trend will resume.
Conclusion: Breadth, Momentum, Currency (Risk On/Off) and Bonds (Risk On/Off) are now aligned with the equity bulls.
Regarding SPX short-term price action, the Triangle, which I suggested yesterday, has been completed, but the choppy move (It should have been a thrust!!!) following the contracting pattern suggests that there should be some more business to the upside in order to complete the assumed wave (A) from the November 16 low. (I would be surprised if the small double top pans out). The Triangle has a measured target at 1552.
Maybe a bullish reaction to today's NFP could provoke exhaustion by eod.
Have a great weekend!!!
