GOLD AND BOSTON BOMBING UNNERVE THE EQUITY MARKET.
Breadth, momentum and VIX are aligned with the Bears.
- McClellan Oscillator: Stochastic sell signal + below the Zero line (This time the Stochastic has a lot of room to the down side before getting oversold)
- Momentum Indicators: Stochastic sell signal (Same as NYMO with a lot of room to the downside before getting oversold) + MACD sell signal + RSI breaching the 50 Line.
- VIX: Huge rise (+43%) Caution to get too bearish is advisable as this move is a bit stretched. Usually being short is fine as long as VIX does not close below the BB.
The apparently inoffensive corrective pattern that SPX began last Thursday morphed into a sharp sell off.
Despite the sharp sell off the internal structure is not impulsive. Maybe a TZZ wave (A) is almost done.
A small range body usually should follow yesterday's candlestick, a Black Marubozu; hence today we should expect choppy price action.
Two bearish options:
1. If bulls counter-attack (They are expert in making good use of short squeezes) but price establishes a lower high than we will have the absolute confirmation of a trend reversal. If the trend is reversing to the down side bears are better off if they are able to maintain price below the 10 d ma = 1569.
2. No dip buyers in which case bears will have to establish a lower low by breaching the critical support at 1539.50. (In my opinion this option is less likely)
If the trend reversal is confirmed then (As I have discussed in my last weekend update) given that:
- From the November low prise has unfolded a 7-wave legged structure.
- Summation Index is already getting oversold
- Extreme bearish sentiment among retail investors.
I expect only a retracement not a major reversal. The potential target is located in the range 1485 - 1448 (200 dma).
