THE SHORT-TERM LOW IS DOUBTFUL
Despite ending the 5 consecutive days of losing streak, yesterday's candlestick, a shooting star, suggests that bulls do not have much confidence in the sustainability of a bounce.
The upper tail shows a rejection at the 10 dma, which needs to be reclaimed (eod print above it) in order to allow a larger bounce. If a short-term bottom is in place bulls will find a tough resistance at the horizontal resistance located at 1709.67.
We have few positives:
60 min RSI continues to display positive divergence.
EOD print above the 3 dma = 1696 (The slope remains negative).
We also have two odd things that rise suspicion that a low is in:
- CPCE is too low: It is odd for a bottom to be established when the majority is betting for it (Contrarian indicator).
- VIX green together with SPX is also odd. There is still a potential IHS (Confirmed with an eod print above the 20dma = 14.78).
Regarding the overall pattern form the September 19 high, I highlight three things:
The pattern is corrective: Therefore price is not involved in a major reversal, instead it should retrace only a Fibo # of the advance from the August 28 low to the September 19 high
It is not completed: Therefore I expect a bottom in the range 1680 - 1666 (50 dma - 0.618 Retracement)
I expect a new ATH
Usually a corrective pattern unfolds a 3-wave down leg, unfortunately after a clear down leg (Assumed wave A) at the September 23 low, price has unfolded a bunch of 3-wave up & doew legs, which is suggesting that the pattern maybe is not complete yet.
So in the following 15 min chart we can see that we do have a higher low but I don't see the impulsive or Ending Diagonal wave (C). Therefore if a low is in place we need evidences. Hence bulls have to break through the red Trend line and achieve a higher high above 1704.
I want to highlight the relevance of the red trend line. Until yesterday's eod I suggested that price could be forming an Ending Diagonal wave (C).
This scenario is no longer valid but instead, if the red trend line is a not breached bears could have a bearish triangle hidden but ready to be used. If this is the case the following thrust wave (C) down could have a similar size of the preceding wave (A) = 33 handles, hence the theoretical target is at 1667.
If the triangle option pans out the following thrust should complete the corrective pattern from the September 19 high.
If instead a bottom has been established price should have concluded the wave (A) with a falling wedge. But it is odd since usually when a wedge is done the following move is "furious" to the opposite side.
Anyway if this is the correct scenario I expect this bounce to be sold in the range 1710 - 1715 followed by a wave (C) down (Which is expected to conclude the corrective pattern).
Lastly the McClellan Oscillator, as I discussed last Wednesday, remains a concern. If the Zero line goes a sustainable bottom can be established with a drop below the lower Bollinger Band.
Until proven wrong I maintain a bearish bias (The low so far is doubtful).
Have a great weekend.