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SPX: Follow Up of the Short Term EWP


Yesterday bulls failed to materialize a bullish set up.

A positive divergence of the 60 min RSI while SPX was making a new intraday lower low portended a short-term countertrend rebound, something not unusual given the meaningful decline off last weak high.

SPX 60-Minute Momentum Chart
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The potential bullish set up suggested that if bulls were able to reclaim the critical resistance layer (1709-1709.65) it should have resulted in a likely multiday-day bounce with a potential target in the range 1713-1717 (Below is the SPX 60 min chart I posted yesterday afternoon on Stocktwits/Twitter).

SPX 60-Minute Chart
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Instead bulls failed at the mentioned resistance and gave up all the gains extending the slide from last week high (4 consecutive days).

While a bounce is still possible, yesterday's overall price action is disappointing. In my opinion an upward pattern is now less likely at the most price could unfold a larger sideways structure. In addition, usually weakness into the close is a bearish sign.

Therefore taking into account that the short-term time picture is a bit confusing we should not rule out a larger sideways pattern but SPX is clearly vulnerable hence the risk of another down leg is elevated. If this is the case the measured move of the second down leg off last week high is at 1675. But if the Ending Diagonal option that I have been discussing recently is correct, the wave (IV) dip should be larger (Closer to the 0.618 retracement = 1666).

SPX 60-Minute Chart 2
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The McClellan Oscillator is also flashing a warning: The MACD has a bearish signal cross while the histogram has entered negative territory, it can be a token of further market weakness ahead. If the Oscillator loses the Zero line it will most likely coincides with the SPX second down leg, maybe a bottom could occur with a dip below the lower Bollinger Band. Certainly bed things usually happen when the McClellan Oscillator drops below zero.

NYSE McClellan Oscillator Chart

VIX also has a suspicious pattern in progress; it is not guaranteed that it will pan out but just in case monitor the potential missing right shoulder. The IHS has a theoretical target close to 17.

Even if the IHS is aborted the positive divergence of the RSI(5) at the last low and the positive slope of the 3 dma are raising the odds of further strength ahead.

VIX Daily Chart
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As a conclusion, due to the issues discussed above odds favour a larger downward correction with a likely target located in the range 1678- 1666. Clearly it will not decline in a straight line but I do expect more down side action until we can see extreme oversold readings of short-term breadth and momentum indicators.

SPX Daily Chart
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