NEGATIVE DIVERGENCES ARE SUGGESTING THAT A SHORT TERM TOP IS APPROACHING
In my opinion the forthcoming pullback will not jeopardize the not yet finished EWP from the November lows.
- The McClellan Oscillator has peaked on May 8. Even if SPX may have not completed yet the last wave that is expected to conclude the advance from the April 18 low the Oscillator will most likely show a negative divergence.
- The Stochastic is rolling down while the RSI is showing a negative divergence. When/If the RSI loses the trend line in force since the April 18 low it should open the door to at least a multi-day pullback.
In addition, so far, the weekly candlestick is suggesting a loss of upside vigour (Small range body).
As I mentioned in my last weekend update the "ideal" buying exhaustion could occur at the upper weekly Bollinger Band which today stands at 1642.
Given the internal structure of the up leg from the April 18 low I rule out that price has completed the advance from the November lows, therefore in the coming pullback I don't expect a weekly close below the 10 wma which today's stands at 1584.
Beforehand the confirmation that price has completed the up leg from the April 18 low and if the following pullback proves to be corrective I expect a move no lower than 1581.
As I have discussed in the daily updates I remain confident that the advance from the November low has more business to the upside due to corrective nature of the current up leg and I maintain the Double Zig Zag count, which needs to unfold the last wave (Y) up.
Given the overlapping internal structure that price is forming since the May 9 lod the count is getting "dicey" as I don't know if the wave (B) is already in place. (Uncertainty regarding the corrective pattern that the assumed wave B is unfolding)
The equality target for the assumed wave (Y) will be achieved at 1642.82 but I would not rule out a higher target as usually at least a 0.618 extension of the previous wave (A) can be expected = + 33 handles.
Keep in mind that the ending wave of an EWP has to be impulsive or it must form an Ending Diagonal.
Despite the immediate SPX pattern is not clear VIX is forming a potential bullish Falling Wedge, therefore if this reversal pattern is not busted the expected equity top should not be too far off.
Regarding the EWP of the advance from the November lows I maintain the two options that I have been suggesting.
- Triple Zig Zag:
- Double Zig Zag:
