BULLS HAVE REGAINED THE UPPERHAND. A NEW ALL TIME HIGH IS PROBABLE BUT I DON'T EXPECT A MAJOR BREAK OUT.
Today I fill sick so I am posting a brief weekly update.
The bullish arguments discussed last Thursday have proved to be correct, therefore now SPX has the outward appearance of having concluded the corrective EWP off the May 22 high.
Besides I don't expect "bearish activity" ahead of the FOMC meeting on June 19.
If this is the case, as long as Friday's gap at 1622.56 is not closed, my preferred EW count of the advance from the November low will be concluded with the last wave up.
The last up leg can either unfold an impulsive sequence or it could be the thrust following a Triangle if the internal structure of the rebound off last Thursday's lod morphs into a corrective pattern.
Theoretically, the assumed wave 11 has an extension target in the range 1692-1750.
I remain cautious regarding the upside range since it is not probable that price can easily move substantially above the weekly Bollinger Band.
In addition breadth and momentum indicators are causing distress and even if there is an improvement, negative divergences will definitely warn that price is establishing an intermediate top.
- Weekly Momentum: We have a Stochastic sell signal in force while it is probable that the RSI will show a negative divergence during the assumed last wave up.
- Daily Momentum: We have a MACD sell signal in force. Here the positive is a bullish cross of the Stochastic coming from below the oversold line and the RSI that has recovered above the 50 line.
- The Summation Index holds the key. It is alarming the collapse below its April low. Since the RSI has reached the oversold level it is probable an improvement although a recovery above the May peak is doubtful, in which case it would show a negative divergence.
The extent of the recovery will depend upon if the McClellan Oscillator follows the script of triggering a breadth thrust from oversold to overbought.
In the daily chart we can see the impressive vertical move from last Thursday's lod, however two major obstacles can still prevent the revisit of the May 22 high: the 20 dma = 1646 and the 0.618 retracement = 1553.
For next Monday I would not rule out a consolidation phase that could result in a small range body. In addition a larger pullback provided that the gap at 1622.56 is not closed, would establish a higher low strengthening the bullish pattern.
In addition, as we can see in the 30 min chart, if bulls are patient and allow a pullback they could set a textbook bullish pattern shaping the right shoulder of an Inverted H&S (Theoretical target = 1691).
Regarding the long-term count I maintain the scenario that price is unfolding the "bearish" wave (X) with a Triple Zig Zag.
Two options within a potential bearish rising wedge:
- Ending Diagonal wave (Z):
- From a Triangle wave (x) concluded on December 31 price is unfolding the last Zig Zag up:
