THE PULLBACK IS UNDERWAY
Preamble of my preferred scenario ====> the current pullback does not belong to a "major" reversal pattern; instead I expect just a retracement of the up leg from the April 18 low.
The up leg from the April 18 low has not unfolded an impulsive up leg therefore it cannot conclude an EWP.
The advance from the November lows should unfold an 11 -wave up leg; therefore there is still one missing up leg.
The current down leg can either unfold a downward pattern (Zig Zag / Double Zig Zag / Triple Zig Zag) like the four previous ones or a sideways pattern that could form a triangle, in which case it will require a longer time to be shaped.
Going forward since major market players are clearly sensitive to a continued asset purchase by the FED, strong economic numbers will have a negative impact while weak ones will maintain alive the hope of QE into infinity.
Key economic releases:
May 31 Chicago PMI
June 3 ISM Index
June 5 FED's Beige Book
June 7 NFP
While the next FOMC Policy Update on June 19 (It includes Ben Bernanke press conference) will be a major risk event (Exit strategy? Tapering?).
Therefore it seems reasonable that the correction should last at least until the next NFP release (12 days) ===> Probable downward correction.
If instead, major investors decide to wait until next FOMC meeting ===> Probable Triangle.
Next in the weekly chart, as I mentioned yesterday, so far we have a bearish weekly Shooting Star (it could morph into a bearish 3 weeks Evening Doji Star). Bears should prefer a weekly close below the upper BB which today stands at 1662.
Again, as I have recently suggested, I don't expect a weekly close below the rising 10 wma which is now standing at the horizontal support (previous break out now support) at 1597.35.
It does not matter any more but yesterday, instead of the suggested ED price concluded the corrective pattern from the April 18 low with a thrust following a "freaky" Triangle.
This is the chart I posted yesterday on Twitter/Stocktwits:
Next in the 30 min chart I have labelled my preferred count of the up leg from the April 18 low ===> TZZ.
We still need price to breach the last higher low at 1648.60 but it almost guaranteed that this up leg is over.
I have outlined 3 potential target areas based upon the Fibonacci retracements:
It is just a thought but given that the April 18 up leg (Assumed wave A) has risen 151.19 points probably odds should favour at least the 0.5 retracement = 1611 as a potential target in the case of a Zig Zag /Double Zig Zag while the 0.382 Ratracement = 1629 could fit better with a Triangle.
At the moment I am clueless regarding the labelling of the current down leg hence I prefer to wait a while longer before publishing a working count. But given the weakness of European markets I would not rule out that today or tomorrow price could test the 20 dma = 1627.74 If this is the case I would expect a large rebound attempt.
The McClellan Oscillator is already oversold but despite being below the Bollinger Band I doubt that this time it can trigger a buy equity signal, instead I expect something similar to the end of February pattern with a bounce (It should remain below the zero line) and another "flash" below the Bollinger Band.
VIX did not form the suggested Inverted Head and Shoulder so there is not a clear reversal pattern. Here we have to monitor the potential buy equity BB signal.