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SPX: Follow Up of the Short Term EWP


Yesterday's solid performance (Monday's gap down has been closed) following Monday's Hammer is inductive of a potential bottom (In my opinion the wave A of a Zig Zag).

Without a wash-out-capitulation as well as absence of positive divergence of short term momentum (RSI 5) and breadth (McClellan Oscillator) indicators, in my opinion, this bounce can extend higher but I remain sceptical that the corrective pattern from the September 19 high has been concluded.

This is a difficult tape to trade as it is headline dependent, but yesterday's candlestick is suggesting a probable follow-through to the upside, IF the 20 dma holds.

If this is the case price should fill the white space until the 10 dma, which stands at 1702 (Target 1). If bulls cross this winning post the next target (Target 2) is at 1710. Here is the maximum spot allowed for the top of the assumed wave (B) and kick off of the wave (C) down. Keep in mind that if price is unfolding the wave (IV) of the Ending Diagonal scenario it should bottom in the range 1666 (0.618 Retracement) - Trend line off the June 24 low - 100 dma = 1660.

Above 1710 (I don't expect it) price will revisit the September 19 high and probably will establish a new ATH.

Therefore if today we see evidence the short-term bias would be bullish.

SPX Daily Chart
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Short-Term EWP:

Price on September 26 concluded a Triangle, but its wave (e) instead of establishing the wave (B) of a likely ZZ down it culminated the wave (X) of a DZZ down, for this reason with a 3-wave thrust it has probably completed the first down leg of a larger corrective pattern (Zig Zag).

Below I have the 30 min SPX chart I posted yesterday afternoon on Stocktwits/Twitter discussing the short term bullish idea with 2 key levels to watch today: Below = 1687; Above 1698.

SPX 30-Minute Chart
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As a matter of fact if bulls today do not fail the short-term bullish setup has a theoretical target at 1710:

SPX 5-Minute Chart
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In the technical front, the "picture" remains aligned with the bears.

  • The McClellan Oscillator has briefly (On Monday) dropped below the zero line but yesterday bulls have recaptured it. As you can see there is no positive divergence in the Oscillator, nor in the histogram of the MACD, which is negative, hence the probability of another down leg, in my opinion, is large.

NYSE McClellan Oscillator Chart

  • Daily Momentum so far remains bearish biased, despite the RSI (14) has bounced off the 50 line (Line in the sand for more weakness) the RSI (5) does not display the mentioned positive divergence and neither the Stochastic nor the MACD have reversed their sell signals:

SPX Momentum Chart
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  • The BPI's sell signal remains in play:

S&P500 Bullish Percent Index Chart

Going forward VIX has to be closely monitored.

The suggested IHS played out and the target was hit.

Now if the scenario for SPX of a limited bounce (wave B) is correct VIX should not breach the 200 dma, which stands at 14.45:

VIX Daily Chart
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