WATCHFUL FOR AN ENDING PATTERN

The time has come to be on a look out mode for an ending pattern.

Weak breadth indicators and a mounting divergence of XLF and IWM are raising a serious warning that the rally from the November lows is approaching its end.

• The Summation Index continues to weaken.

• IWM: The pattern from the March 15 high is corrective but by violating both the 20 dma and a critical horizontal support located at the February 20 peak (Break out level) it is suggesting that it is probable that the up leg from the February 26 lod is finished.

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• XLF: Here the internal structure of the pullback is still favouring another push higher but if the Triangle wave (B) pans out then the odds that price has already began a corrective phase would substantially increase.

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Take notice that both IWM and XLF would be carrying out a CORRECTIVE pullback.

Lets move on to the SPX charts:

Regarding the overall scenario I maintain unchanged my preferred counts:

• Shorter-term time frame: Price is involved in establishing the top of the CORRECTIVE up leg from the November lows.

• This corrective up leg can be the wave (I) of an Ending Diagonal that will complete the wave (X) from the 2009 lows

===> Therefore once price confirms a reversal pattern the following pullback should retrace only a segment of the up leg from the November lows. At the moment lets establish a potential target range = 1485 - 1438.

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Lets zoom in to the current pattern:

• A Triangle wave (B) was completed on March 27. This contracting pattern has a theoretical target for the assumed wave (C) at 1583.

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• Following the Triangle since the thrust has not unfolded an impulsive sequence I have been suggesting that price MUST unfold an Ending Diagonal.

Well so far the ending pattern is playing out, but it is not clear yet if price only needs to unfold the last wave (V), or it is forming a larger one.

Below I show you the two Ending Diagonal options:

1) Ending Diagonal almost over:

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2) Large Ending Diagonal:

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I have the feeling that if the scenario of an Ending Diagonal is correct the latter should pan out. (It will depend if next Friday's NFP does not upset the Bulls and by the willingness of waiting for the release of initial earning reports. The earning season begins on April 9.)