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SPX: Follow Up of the Short Term EWP

I MAINTAIN A BULLISH BIAS BUT A PULLBACK COULD BE AROUND THE CORNER

I maintain unchanged the current scenario:

On the August 28 low price has established a "swing" low and it has resumed the intermediate up trend.

In the weekly chart below we can see 2 major reasons:

  • SPX has recovered above both the 20 and 10 wma, in addition both ma have a positive slope.

  • The 3 wma has crossed above the 5 wma.

Critical price levels:

  • Obvious support at the weekly gap = 1687.99.

  • Resistance: August peak = 1709.67 // Upper BB = 1722 // Trend Line = 1425. (2 points weekly raise)

So far the weekly candlestick is bullish, so we cannot rule out more upside action maybe with a large white Hallow candlestick or a reversal at the August high with a Shooting Star.

Two key events are upon us:

  • Today is Bernanke's day.

  • Tomorrow we have quarterly OPEX (Often it corresponds to market turning points).

The bigger picture scenario that I am working is considering that if the upper converging trend line is not breached price could be forming a large "bearish" wedge.

This idea at the moment would be coherent since the advance from the August low is corrective hence it is either the wave (A) of the up leg within the wedge or it will conclude the entire up leg if it reaches the upper trend line. (The pattern will be completed with one more multi-week down - up sequence)

SPX Weekly Chart
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As I have discussed in the last weekly update the Summation Index is aligned with the current bullish scenario since when it issues a buy signal usually the next sell signal will not occur until the RSI enters the overbought zone. (Keeping in mind that it can remain overbought for an extended period of time)

But we also have to be aware that the Summation Index as well as the discussed weekly RSI of SPX are displaying negative divergences hence, I remain open minded, but we should not discard the probability that price is involved in a topping process. (it could extend into year's end)

NYSE Summation Index Chart

Short-Term EWP

I don't know if the current advance will unfold a Zig Zag or a "melt-up" towards the weekly upper Bollinger band.

Since short-term technical indicators are extended I lean towards the option of a pending multi-day pullback.(Below I show you daily chart I posted yesterday afternoon on Stocktwits/Twitter with few thoughts)

SPX Daily Chart
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I am monitoring the McClellan Oscillator since even if yesterday it has established a new higher high and it is entering the overbought zone; the histogram of the MACD is showing a negative divergence which is suggesting that price should be getting closer to at least a short-term pause.

NYSE McClellan Oscillator Chart

It is a fact that from the August 28 low price has unfolded a corrective pattern, maybe a TZZ, but as it is always the case, corrective patterns have the tendency of morphing so most of the time I am "behind the curve". In these cases I try to "find" a pattern that helps in establishing the position of price within the EWP.

In my opinion we have a Triangle (Concluded last Friday). Triangles are often the penultimate pattern; unfortunately despite the thrust, yesterday's higher has mixed up the structure. So at the end of the day we still do not have a clear ending pattern in sight.

SPX 60-Minute Chart
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In the mean time Momentum Indicators are bullish but overbought.

SPX Momentum Chart
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Lastly I am watching volatility for clues. Yesterday I posted on Stocktwits/Twitter a chart of XVI, which could be forming a rising wedge. If it pans out I expect a swift drop towards the 200 hma, which stands at 26.40

If this is the case VIX will move above the 200 dma = 14.55 kicking off the equity pullback.

If the wedge is killed it will most likely deny the expected short-term pause opening the door to continuation of this up leg towards the weekly upper Bollinger Band.

XIV 60-Minute Chart
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