THE NOVEMBER UP LEG IS MOST LIKELY OVER
Another aggressively selling across the board has negated the final wave (V) of the smaller SPX Ending Diagonal option I discussed yesterday. The end result has been an ED with a truncated fifth wave. The following down leg can be counted as impulsive; in addition for the immediate time frame price should be unfolding an Expanded Flat wave (2) with a potential target in the range 1559-1564 (The 10 dma = 1560 is a probable candidate).
If this short-term scenario plays out (5 down followed by 3 up) we will have a bearish set up.
As I have been discussed recently due to EW counts, breadth & momentum divergences and sell signals and an already confirmed reversal of several major US equity sectors we can conclude that the November rally is over.
As it is always the case we now need a lower high as the ultimate confirmation that price has began a multi-week correction phase.
So we are in the infancy stage of a sizeable correction. On its way to a Fibonacci retracement of the rally from the November lows the next major support is located at 1538.57, maybe if bulls make a stand and fight back, price, before breaking through the pivot support could be forming a Head & Shoulder.
As I mentioned yesterday I am expecting ONLY a Retracement not a Major Top with a target in the range 1485 - 1430 (Probably 1457 - 1439; I expect that the 200 dma will not be breached).
For today I expect a countertrend rebound for the following reasons:
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Likely completed first impulsive sequence.
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High CPCE:
- The McClellan Oscillator is already oversold both its stochastic and yesterday's plunge below the Bollinger Band suggests that barring a crash the odds favour a rebound.
Regarding the VIX so far I don't see a major reversal pattern, instead we have a potential theoretical target in the area of the 200 dma if the Triangle width thrust is fulfilled.
Going forward I will closely monitor the potential Bollinger Band buy equity signal.
