NO CHANGE - THE PATTERN IS CORRECTIVE BUT NOT OVER. THE BEARISH CROSS OF THE WEEKLY MACD SUGGESTS FURTHER WEAKNESS AHEAD.
Given the internal structure of the decline from the May 22 high, SPX remains vulnerable of embarking in a larger corrective pattern without endangering the intermediate trend, which remains up.
The line in the sand of my preferred scenario is at the trend line support in force since the October 2011 low, which now stands at 1486 and raises 4 points +/- each week.
As you know, in my opinion from the November 2008 low price is unfolding the "bearish" wave (X) within a Triple Zig Zag.
I have been suggesting that price could be unfolding an Ending Diagonal wave (Z) in which case the current pullback is the wave (II) of the assumed Ending Diagonal:
In the weekly update published on June 6 I have added another option within the TZZ count, in which case following a Triangle wave (x) concluded on December 31 price is unfolding the last Zig Zag up.
In addition last Friday I suggested that the assumed TZZ could be evolving within a bearish rising wedge. If the trend line from the October 2011 is not breached the last wave up can conclude the corrective pattern from the November 2008 low establishing a major top.
If the latter option is correct, from the May 22 high price is unfolding the wave (B) of the third Zig Zag, which should bottom in the range of the 0.5 (1542) - 0.618 (1508) retracement of the assumed wave (A) which began at the December 31 low. Key candidates for the expected bottom are the rising the 200 dma which today stands at 1506 and the mentioned trend line from the October 2011 low.
Going forward this option is now my preferred count.
The weekly MACD bearish cross is aligned with the scenario of a larger decline. If the weekly RSI does not hold the 50 line then probably the correction could prolong until the weekly Stochastic reaches the oversold line.
In the weekly chart we can see that the loss of the 10 wma has officially locked in the advance from the November lows, therefore going forward the 10 wma is expected to reject any rebound attempt.
On Friday price managed to close above the 2007 high = 1576.09 (Previous resistance, now support) and the 20 wma = 1582.
Since the EWP from the May 22 high is not complete, I consider this a temporary halt. The loss of 1576 will open the door to further weakness, towards two clear magnets: the 2000 high at 1553 and the April 19 low at 1536.
So far we have a 3-wave down leg, therefore it seems reasonable to consider that price will unfold either a Zig Zag (Price on Friday should have concluded the wave 1 of 5 of C) or a more complex correction that could morph into a Double or Triple Zig Zag (We are now in the wave W).
As long as down legs are impulsive I will follow the former option (Zig Zag). The assumed wave (C) has the 1.618 extension target at 1508.
For next week I expect a larger rebound for the following reasons:
An impulsive sequence form the June 19 peak can be considered concluded (Assumed wave 1). Usually a wave (2) rebounds in the range of the 0.382 (1607) and the 0.618 (1624) Fibonacci retracement.
I don't expect an eod print above the 50 dma = 1618, while if price recovers above 1609 the range 1615 - 1618 is a probable target.
In addition price could be forming an Inverted Head and Shoulder with a target at 1619.
- Friday's Doji candlestick implies a loss of downside momentum. The two obvious targets for the expected larger bounce are 1608 and 1618.
- Equity Put/Call Ratio (Contrarian Indicator) is too high suggesting excessive bearish sentiment.
VIX on Friday formed a bearish Harami candlestick in addition to a Bollinger Band "buy equity" signal.
The immediate support is located at the 10 dma = 17.41
If the 10 dma is breached further weakness should be contained at the 20 dma = 16.50.
The extent of the pullback will give us clues regarding the potential target of the assumed SPX wave (2) rebound.