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SPX: Follow Up of the Short Term EWP


Now it is obvious that the reason that is preventing a pullback is Friday's quarterly Opex and if you still expect a pullback ahead of next Wednesday FOMC meeting you better take a few days off (This is what I will probably do).

The short-term breadth sells signals remain in place. Yesterday I showed you the sell signal issued by the McClellan's stochastic.

Well despite it is showing a clear negative divergence (weak buying power) it is not deterring equity higher highs.

NYSE McClellan Oscillator Chart

It is an abnormal behaviour that despite the lower highs/lows of the NYSE Adv-Dec Volume (Another negative divergence) there is no selling pressure.

NYSE Advance/Decline Volume Chart

Ok so this behaviour has to be "digested". I cannot go long for obvious technical reasons and neither I should short (Although I am holding a small short size).

I am confident that price will eventually give in to the overwhelming negative breadth warnings, probably after Ben press conference next Wednesday.

Lets go to the charts.

First a weekly SPX chart:

I am not going to discuss the long-term count, since the abruptly truncated correction on February 26 (I was not expecting it) has modified the path within the bearish wave (X) off the 2009 lows.

As I suggested in my last weekend update I am considering that price from the November lows has begun an Ending Diagonal (Now in the wave I), but this for the time being is just a suggestion. So I will remain only focused on this up leg.

So far we have a weekly small range body that is suggesting a potential top formation. If you are a fan of candlestick charting we could even make the case that SPX is forming an Evening Doji Star. This bearish pattern requires that next week price will have to lose the 1530 support. While in order to consider over the up leg from the November lows bears have to reclaim the 10 wma = 1515.

SPX Weekly Chart
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So far there is no EW reason to have confidence on such a bearish outcome. I know that the majority of EW wavers are considering that price from the November lows is on the verge of establishing the top of the fifth wave, therefore they are expecting a large retracement. I am sorry but I am not in this camp.

In my opinion, as I have discussed in the daily updates, price is unfolding a corrective Triple Zig Zag pattern. If this count is correct instead of the top of the wave (5), price is involved in the late stages of the wave (A) of the third Zig Zag, hence I expect only a shallow pullback wave (B) with a target in the range 1530 (Previous break out) -1525 (20 dma).

When bears will break down the rising trend line support in force since the December 31 low then I will consider over the rally from the November lows.

Therefore I am giving the benefit of the doubt to a still larger up leg, with the line in the sand is at the mentioned trend line.

SPX Daily Chart
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Something else is lining up in this direction. The EUR could be in the process of establishing a bottom. Probably it will not be the end of the corrective pattern from the February 1 high but even if it is just a wave (B) rebound it could reach the 50 dma = 1.3267.

If this is the case I cannot imagine a large equity pullback with a raising EURUSD.

This morning I posted the following EUR daily chart (It is not updated) on Twitter/Stocktwits, where we can see that price could be forming a bullish falling wedge. In addition we have the RSI with positive divergence. If this wedge pans out or if it gets larger just below we have the 200 dma at 1.2865, given the oversold daily momentum readings I believe that the odds are favouring a rebound.

EUR Daily Chart
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Lets go back to SPX short-term price action.

Obviously the H&S pattern I suggested yesterdays did not pan out.

Just for fun I propose two potential patterns:

  • Triangle:

SPX 15-Minute Triangle Chart
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  • Ending Diagonal:

Usually an extended up leg with negative divergences ends with one of the above patterns.

SPX 15-Minute Ending Diagonal Chart
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Regarding the two Risk ON / Risk OFF indicators that I am following, one is equity bearish (TLT) the other one is giving mixed signals (VIX).

  • TLT is suggesting that a larger countertrend bounce is already underway (No change from yesterday's chart information), suggesting that either bond traders are wrong or SPX should soon begin a pullback.

  • VIX: As I mentioned yesterday so far there is no indication that last Monday's lod will hold (A short term bottom is not confirmed). But we could have a potential Double bottom set up (If the RSI positive divergence is maintained).

VIX daily Chart
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As I mentioned at the beginning of this update I might be leaving for a long weekend of ski to GrandValira (There is a ton of snow) but since my friends are leaving tonight at 3 am I will decide in the last minute (If I wake up on time!!!!). So in case I join my friends I will be back next Monday.


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