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Weekly Technical Analysis

THE PATTERN IS CORRECTIVE BUT IT COULD HAVE MORE BUSINESS TO THE DOWNSIDE

FED Tapering fears will probably maintain price in a sideways pattern ahead of next Wednesday's FOMC meeting.

It is an irrefutable fact that from the May 22 high price is unfolding a corrective pattern.

Elliot Wave wise a corrective pattern is defined as countertrends move therefore the intermediate trend is not in danger of being reversed.

Until last Thursday I was confident that price had not concluded the corrective EWP of the advance form the November 16 low, while this scenario is still possible, since the internal structure of the rebound from the June 6 low is not impulsive, it can only be accomplished with a Triangle. Therefore with only one wave in place of the five needed I cannot objectively give too much confidence to this pattern.

SPX Daily From November 16 Chart
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In addition both the weekly RSI with the loss the trend line support in force since the November low as well as the Stochastic sell signal and loss of the 80 line are aligned with the scenario of a larger correction. Obviously the admissible doubts will be removed once/if the MACD triggers a sell signal.

SPX Weekly Momentum Chart
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Therefore since in my opinion there is not a feasible pattern capable of allowing the immediate resumption of the uptrend from the June 6 low as well as the evident inability of the bulls to reclaim the 20 dma and a bearish cross of the 10dma below the 20dma, we have to remain open minded since the probability of a deeper correction is rising.

If this is the case, even if bulls achieve a larger rebound or if the 50 dma is breached, I cannot rule out a downward correction with a target box in the range 1555 - 200 dma (1501) or not lower than the trend line support from the October 2011 low.

SPX Daily From November 16 Top In Chart
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In respect of the long-term EW count I maintain the scenario of the bearish Triple ZZ wave (X) with two options:

  • The final wave (Z) will be established with an Ending Diagonal.

SPX Weekly Triple Zig Zag Chart
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  • The last Zig Zag is in progress from the December 31 low.

SPX Weekly Chart
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Lets now analyse the short-term pattern.

In my opinion we have three possible patterns:

  • From the June 6 low price could unfold a Double Zig Zag with a potential target in the range 1660-1665. This pattern could allow the large bullish Triangle; if the following pullback is corrective and establishes a higher low otherwise a Zig Zag down will be in progress with a potential target in the area of 1570. This option seems unlikely before the FOMC.

SPX 60-Minute Chart
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  • From the June 10 peak price is forming a short-term bullish Triangle. (Positive short-lived reaction to the FOMC). The following thrust will establish the wave (B) of the large bullish Triangle or the wave (B) of the bearish Zig Zag (Potential target in the range 1580-1565).

SPX 60-Minute Bullish Triangle Chart
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  • From the June 6 low price is forming a bearish Triangle either wave (B) of the Zig Zag option or wave (X) of Double Zig Zag option (Negative reaction to the FOMC). If the overall pattern from the May 22 high is a ZZ then the target of the assumed wave (C) down could be located in the area of 1550-1446.

SPX 60-Minute Bearish Triangle Chart
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In the technical front:

  • An already oversold Summation index should prevent a major waterfall decline. The weekly Stochastic has entered the oversold zone with its "K" line. A new buy signal will be issued when the "K" line crosses the "D" line

NYSE Summation Index Chart

  • It is disappointing that the McClellan Oscillator did not trigger the expected breadth thrust from the extreme oversold reading reached on June 5. If SPX has more business to the down side we need to see a positive divergence in the next down leg.

NYSE McClellan Oscillator Chart

  • Regarding Daily Momentum Indicators we have to monitor the RSI, which has formed a Pennant. A break out could be imminent. In the mean time the bearish signal cross of the MACD remains in force. If it loses the zero line odds would favour the scenario of a larger correction.

SPX Momentum Chart
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  • A good sign is the bounce of the NYSE 10 dma Adv-Dec volume from the same area where the market began the rally off the November low.

NYSE Advance/Decline Volume Chart

  • The spike of the 10 dma of the Equity Put/Call Ratio (Contrarian indicator) is suggesting that we should not be too far from a bottom.

CBOE Options Equity Put/Call Ratio Chart

 

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