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.
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:
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.
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.
For today I expect initial follow through to the upside due to the following reasons:
- McClellan Oscillator has a positive divergence:
- Equity put/call ratio is too high
- 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.