THE RISK OF A LARGER DOWNWARD CORRECTION REMAINS ELEVATED
Despite the McClellan Oscillator has been exceptionally positive since the June 24 low, we have a positive divergence and a breadth thrust, the internal structure of the advance from the June 24 low and a weekly momentum sell signal remain a source of danger maintaining elevated the risk of the resumption of the corrective pattern from the May 22 low with more down side action.
I will maintain a bullish bias (But I don't expect the resumption of the intermediate up trend) as long as the McClellan Oscillator remains above the Zero line.
In addition to the character of a countertrend bounce the NYSE Adv-Dec Volume is not showing a surge buying pressure, which should occur in a major reversal. (Absence of accumulation)
In my last weekly update I have discussed two potentials scenarios:
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Larger downward correction.
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Larger sideways pattern that could form a Triangle.
With the objective of keeping the analysis as simple as possible, we are talking about a countertrend wave (B) of a larger Zig Zag down or of a Triangle in which case the June 24 lod will not be revisited. (Price will establish a sequence of higher lows/lower highs)
I will maintain the scenario of a larger down side pattern as long as the current rebound stalls in the range of the gap located at 1628,93 and the June 18 peak at 1654.
It is a disappointment yesterday's shooting star and the failure of the bulls to carry out an impulsive up leg, which would have opened the door to higher targets.
Obviously bulls will have a serious problem if they don't reclaim the 50 dma and close the gap at 1629.
Seasonality remains bullish until tomorrow, keep in mind that US markets are closed on Thursday. While on Friday we have the critical event risk of NFP
So at the end of the day instead of potential large Zig Zag up with and impulsive wave (C) price could be forming an Ending Diagonal.
If this is the case once/if the ED pans out it will be followed by a sharp decline that could kick off the resumption of the downward correction if the gap at 1588 is closed.
Sector wise lets keep an eye on XLF since, given the proximity of the upper Bollinger Band, yesterday's textbook Shooting Star is a serious overhang for the bulls as it could signal the end of the countertrend rebound.
It is worrying a Shooting Star when the MACD is on the verge of a bullish signal cross. (It could be a failure)
Below I show you the XLF chart I posted yesterday on Twitter/Stocktwits. (the chart is not updated)
