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SPX: Follow Up of the Short Term EWP

SELLING PRESSURE CREEPS IN

  • Momentum and breadth are suggesting that there is serious distribution activity, which increases the odds that SPX should be on the verge of confirming a trend reversal. (The up leg from the November lows would be over)

  • Elliott Wave wise, the current pullback has unfolded a corrective pattern that could mislead the bulls. Usually a corrective move does not belong to a reversal pattern.

So regardless of EW counts I know the price zone that will confirm a "temporary" top if/when it is breached ===> 1539.50.

SPX Daily Chart from Nov 16
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Lets look at the internal structure of the current move: Price has unfolded a 5 - wave down leg that in my opinion cannot be considered an impulsive sequence:

SPX 5-Minute Chart
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If it is not impulsive then it is not over yet ===> A 7-wave structure is needed.

I see two options:

1. Double Zig Zag wave (A) (Of a larger Zig Zag or Double Zig Zag).

If this is the case price is now in the wave (B) rebound, which will be followed, by the last wave (Y) with a theoretical target at 1530.

SPX 15-Minute Double Zig Zag Chart
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2. Zig Zag with an Ending Diagonal wave (C). (Of a larger Zig Zag or Double Zig Zag)

If this is the case the assumed pending wave (V) will have to be corrective and has to bottom below 1539.50.

SPX 30-Minute Chart
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For today I expect initial follow through to the upside due to the following reasons:

  • McClellan Oscillator has a positive divergence:

NYSE McClellan Oscillator Chart

  • Equity put/call ratio is too high

CBOE Options Equity Put/Call Ratio Chart>

  • TRIN = 2.95 (It can be considered as a sign of exhaustion)

But probably if one of the two counts discussed above is correct this bounce will eventually be sold. (Maybe a low tomorrow: OPEX day).

Once the pattern is completed I expect a multi-day rebound that will have to establish a lower high giving the absolute confirmation of the trend reversal.

 

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