NO CHANGE - THE PATTERN IS CORRECTIVE BUT NOT OVER
The daily swings that we are recently witnessing are frustrating since it is tough to come up with a confident count, but what is important is not to lose sight of the irrefutable fact that from the May 22 high price is unfolding a corrective pattern that so far is suggesting that the advance from the November low is still intact.
The question is if price will conclude the EWP next Friday with the NFP release or it will be delayed until June 19 FOMC day.
We already have some metrics in oversold territory but with mixed signals:
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Stochastic has crossed the oversold line.
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RSI so far is holding above the 50 line.
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MACD is maintaining a bearish look, as it is moving away from its signal cross.
- The McClellan Oscillator is oversold, but it can get more oversold. What is important here is that once a bottom is in place I expect a breadth thrust.
- The RSI of the Summation Index is now entering the oversold territory while in the mean time the index is approaching its 200 dma. Usually the RSI remains oversold some time before a new buy signal is triggered.
As a general rule, barring a sudden reversal (it could be possible on NFP or FOMC days) a confident bottom should occur with positive divergence (I will be monitoring the daily RSI and the McClellan Oscillator).
Regarding the labelling of the pullback from the May 22 high, in my opinion price is unfolding a Double Zig Zag.
The "fulcrum" of this EW count is the potential triangle concluded on May 31. This assumed triangle could have established either the wave (X) or the wave (B) of the second Zig Zag. Therefore we could have the following options:
- Triangle wave (X) option: Since the down leg off yesterday's hod is corrective this pattern probably needs a triangle wave (B). If this is the case the following thrust will complete the EWP.
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Triangle wave (B) option. In this case we could have two options:
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Price is forming a Triangle wave (X), in which case the pattern will have to unfold another Zig Zag down (Blue count)
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If yesterday's lod is breached the wave (A) of the second Zig Zag should be underway (Red count)
Even though the correct short-term path is not clear I remain confident that price has more unfinished business to the downside. As long as we don’t see an impulsive decline or an Ending Diagonal the EWP cannot be considered over.
Regarding the potential target, if my scenario is correct, price should bottom not lower than the 0.618 retracement = 1593.82, while my preferred # are either the 0.5 retracement = 1611.61 or the 50 d ma = 1603.
Once/if price completes the EWP in the outlined target box the bottom should be confirmed once bulls reclaim the 20 dma = 1647.
Regarding VIX, the Triangle idea has been busted. So now we are probably left with a potential rising channel (Bearish Flag ?).
If my preferred SPX scenario is correct VIX should not break the trend line resistance in force since the June 2012 high
