SELL THE RIP
I maintain the call of a "temporary" top (pending confirmation with a daily lower high)
Yesterday we had a consolidation day, but the choppy internal structure of the rebound can only be qualified as a corrective bounce, therefore the short-term trend is down.
The Harami candlestick is suggesting that the bounce is not over yet, maybe the NFP # will allow a bullish opening but SPX will go lower by eod.
The still high Equity put/call ratio is also favouring a larger bounce.
I have the feeling that this correction at least in the initial stage will be a complex one. Once / if Wednesday's lod is breached I expect that the next leg down will stop at 1538 opening the door to a time a consuming and laborious rebound that could shape the right shoulder of a H&S pattern. If this is the case the "true" selling activity will kick off with an initial target at 1485.
The already oversold McClellan Oscillator is the main reason why I don't expect a huge sell off.
- The Stochastic is extremely oversold
- Another dip below the Bollinger Band usually triggers a buy signal
Also VIX suggests to be prudent with the management of shorts, since even though I expect that the Triangle thrust may reach uts theoretical target with a pending spike in the area of the 200 dma, we have to be aware of a potential Bollinger buy equity signal.
For the immediate time frame yesterday's doji is suggesting at least a weak opening (In agreement with initial strength of SPX).
Regarding the short-term price action I am not sure if the initial down leg has traced an impulsive down leg; the wave 1 of a pending 5 wave decline) or the wave (A) of a Zig Zag down, neither I dare to count the internal bounce since it can morph into several different corrective patterns, but what it matters is that it is corrective hence it is bound to fail to achieve a new higher high.
The two etf that I am monitoring are suggesting that price is unfolding a corrective pattern:
- XLF: The thrust following the Triangle wave (B) can only be either a wave (C) of a larger Zig Zag or within a Double Zig Zag or the wave (1) of a pending impulsive wave (C). In order to keep the boll rolling to the down side price should not breach 18.25.
- IWM has undertaken a deeper sell off but the overall pattern is also suggesting either a Zig Zag or a Double Zig Zag. If today bulls achieve follow through to the upside price should probably fail at the former horizontal support located at 92.68.
Probably yesterday the main event has been the likely temporary reversal of the EUR (There is always something that suddenly come into the rescue of the equity bulls).
Now I expect a countertrend rebound with a potential target in the range 1.3100 - 1.3340 (If the gap at 1.3075 is closed).
A stronger EUR should tamper the selling pressure on the commodity sectors.
This is the chart that I posted yesterday on Twitter/Stocktwits (It is not updated)
Have a great weekend everyone.
