TRIANGLE OR HEAD AND SHOULDER
Today just a brief update, the short-term outcome depends on two clear patterns. Lets see which one is the "winner".
The ES Globex chart I posted this morning on Stocktwits/Twitter shows the two options:
- Option 1: Triangle ===> Price is forming a Triangle; once it is completed the thrust will conclude the final wave 11 (Z) from the November lows.
- Option 2: Head & Shoulder ===> Price from the May 22 high will unfold a downward correction (Probably a Double Zig Zag) with a potential target in the range 1611 - 1597 followed by the last wave 11 (Z).
In the following chart I have labeled my preferred count of the advance from the November low. This count suggests that once the wave 11 is in place, price will carry out a large multi-month pullback with a potential target at the 200 dma.
Technically I should give to both options a 50% probability, but momentum and breadth indicators are suggesting that the downward correction has an edge:
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Daily RSI is establishing lower highs/lows in a clear down trend.
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Stochastic is crossing the 50 line. Usually it should drop to the oversold zone.
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MACD has a sell signal in force.
- The Summation Index has issued a sell signal. Usually when the RSI is coming off an overbought reading the Summation Index should bottom once it reaches the oversold zone. (below the 30 line)
- At the same time the McClellan Oscillator is crossing the - 60 line (Oversold line) for the first time since November 2012. The reading is getting oversold. It can get more oversold but once price concludes the EWP the likely outcome will be a breadth thrust.
Price wise we have the levels that should dictate over one of the suggested patterns:
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Above yesterday's gap down ===> Triangle
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Below the 20 dma = 1639 ===> Double Zig Zag
Maybe yesterday's extreme low reading of TRIN should at least initially favour the bears:
Regarding VIX, since it has not closed yet above the BB, there is no buy equity BB signal in force. I would give a larger probability to a larger second legged structure (From the May 17 low) than a reversal. Lets monitor yesterday's gap as an indication of strength or weakness.
Tomorrow I don't know if I will be able to publish the daily update.
