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SPX: Follow Up of the Short Term EWP


Just a brief update as I am studying the markets.

On Monday bulls failed to take advantage of a short-term bullish setup.

Today the prospects of achieving a new ATH have been substantially damaged.

By breaching the trend line support in force since the November lows in addition of having closed below the 100 dma, the Ending Diagonal that I have been suggesting is no longer valid (Barring an Expanded Ending Diagonal).

Taking into account that the "trio" of swing indicators (Daily MACD, BPI and Summation Index) is warning likely danger ahead, I suggest not to rule out that price with a bearish rising wedge has concluded the advance from the November lows.

I don't know if the entire pattern from the 2009 low is done but odds are now favouring at least a retracement of the up leg off the November lows.

Going forward if the 50 dma is not recaptured the probability of further weakness with a potential visit to the 200 dma will be large.

SPX Daily Off November Low Chart
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I am not going to review the "Breadth Trio", we already know that they have a sell signal in play, but I want to see a weekly confirmation from the Stochastic of the Summation Index, which would open the door to weakness in a multi-week time frame:

NYSE Summation Index Weekly Chart

We also have to pay attention to VIX.

Below in the weekly chart we can see that the last three times that VIX has reached the 200 wma it has been followed by a mean reversion to the 20 wma. The question is if this time is different.

VIX Weekly Chart
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So far the VIX future curve is upward slopping, hence it is suggesting that the "market" is expecting volatility to rise in the near future:

VIX Term Structure Chart
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Short-Term EWP

I have been discussing that the down leg from the September 19 high looked corrective. This is still the character that the down leg is displaying. As a matter of fact we can consider the current sell off as the thrust following a Triangle Wave (B).

Yesterday price almost reached the measured target of the contracting pattern located at 1653.

But even if price is unfolding a corrective pattern the assumed wave (C) would be too shallow hence we should not rule out that price may fulfil the 1 x 1 extension target located at 1631.

In order to try to avoid an extension lower bulls have to reclaim the trend line off the November lows.

SPX 60-Minute Chart
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Despite it breaks EW rules (Especially the ED wave (v) of 1) and the shallow retracement of the assumed wave (2), at the moment I cannot rule out that an impulsive sequence is in progress, in which case price is now unfolding the wave (3)

If this is the case this wave (3) should be larger than the previous wave (1) therefore an oversold bounce without having reached at least 1636 would question the impulsive option.

As well this pattern would be denied if today bulls, without a lower low reclaim the trend line off the November lows (Former support, now resistance?)

Keep in mind that if we are witnessing am impulsive decline the chances of a major reversal will substantially increase.

SPX 60-Mnute Impulsive Chart
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As a conclusion regardless the pattern is impulsive or corrective the scenario is turning bearish hence now bulls have to show evidence that price is not involved in a major retracement.

For the immediate time frame, a tradable bottom (day trading) is probably not too far away. SPX is obviously oversold.

Yesterday's Black Marubozu is suggesting that today we should expect a small range body.

The nearest resistance is located at the 100 dma = 1662

Without reclaiming the trend line off the November lows bulls now have a serious problem.

SPX Daily Chart 2
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