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My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on…

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SPX: Follow Up of the Short Term EWP


The failed attempts to overtake the 50 dma could spell troubles for the bulls (Short term time frame) in spite of the expected bullish seasonality surrounding the half trading day ahead of the US 4th of July holiday.

On Monday bulls failed to achieve an impulsive up leg (second up leg from the June 24 low). I thought that the overlapping structure could have resulted in an Ending Diagonal, but yesterday's weakness has invalidated this pattern as well.

I still believe that the overall pattern from the June 24 low remains "constructive" and should allow the suggested larger 3-wave up leg (Zig Zag) but if Tuesday's gap at 1606.28 is closed the short term bullish outcome will most likely be delayed and will be subject to the reaction of Friday's NFP release.

Today VIX must be watched closely since it would be unusual and a bearish signal if shows strength ahead of the 4th of July holiday. But there are reasons to be open minded since after completing a small wedge the pattern looks bullish if VIX overtakes the 200 hma located at 16.98 (eod print). If this is the case a move towards the resistance range 18 - 18.51 would be probable.

VIX 60-Minute Chart
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If VIX fails to break above the mentioned short-term resistance then the Triangle idea I posted yesterday on Stocktwits/Twitter could pan out:

SPX 15-Minute Triangle Chart
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If Monday's gap at 1606.28 is closed then I expect a larger pullback (Assumed wave B) that should be followed by a wave (C) up (the expected Zig Zag structure off the June 24 low), provided the gap at 1588.03 is not closed.

SPX 15-Minute Wave-B Down Chart
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Even if in my opinion the pattern remains short term bullish (I am referring to a probable larger countertrend rebound from the June 24 low) the McClellan Oscillator must not deny my scenario with a substantial drop below the zero line. (more than one day below the zero line would be a warning)

NYSE McClellan Oscillator Chart

Just as a reminder as I mentioned yesterday I am "working with" two potential scenarios:

  • Larger downward correction.
  • 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."

SPX Daily Chart
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Daily momentum indicators are at a critical juncture for the following reason: If the assumed wave (B) has topped (I doubt it) it is exactly where it should stall since the RSI has not recovered above the 50 line and the MACD would fail to do a bullish cross.

On the other hand if the RSI recovers above the 50 line and the MACD triggers a bullish signal cross then the assumed wave (B) of the large Triangle option could pan out. (It should reach at least the upper Bollinger Band located at 1658)

In the mean time we have to watch the Stochastic, which should not accelerate to the down side if the scenario of a larger pullback is the correct one.

SPX Momentum Chart
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This is the last post for this week as I am going to be away from the screens until next Monday.


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