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Weekly Technical Analysis


When the bull's vessel was taking on water with signs of major supports being broken, on Tuesday SPX had breached the 100 dma, while the DOW on Wednesday dipped intraday below the 200 dma, once again, bulls have been able to bring about the ship, aborting a potential impulsive decline which would have opened the door to a devastating outcome.

Hence with only a 3-wave decline from the September 19 peak, we already know that price will most likely achieve a new ATH.

However as I have already discussed since September 16 the negative divergences of the weekly RSI and MACD, the Summation Index, BPI and % of stocks trading above the 200 dma are strongly suggesting that it is more likely that price is involved in the late stages of a potential terminal pattern rather than the beginning of a new large up leg.

As a reminder the Trio of "swing" trading indicators continue to display negative divergences and sell signals:

1. Weekly Momentum Indicators:

SPX Weekly Momentum Chart
Larger Image

2. Summation Index:

Summation Index versus SPX Chart

3. BPI:

SPX Bullish Percent Index Chart

So far I have been suggesting that SPX was unfolding the wave (IV) of an Ending Diagonal, unfortunately for a clarity perspective, Wednesday's drop below the 100 dma has aborted this pattern unless it has morphed into a lengthier one or instead it is forming an Expanded one.

  • Ending Diagonal Option: If this is the correct pattern, price is now unfolding the wave (III) with a likely target in the area of 1750.

SPX Daily Ending Diagonal Chart
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  • Expanded Ending Diagonal Option: Price is now unfolding the last wave (V). In an EED the last wave can truncate, establish a marginal higher high or reach the upper trend line located in the area of 1750.

The EED pattern can pan out but probably it is a "forced" count.

SPX Daily Expanded Ending Diagonal Chart
Larger Image

In the case of the DOW, I can "envision" two possible patterns:

  • Ending Diagonal: Like in the case of the SPX ED option price would be now unfolding the wave (III). Since the wave (III) cannot be larger than the wave (I) we already know the maximum target, which is located at 15795.82.

DOW Daily Expanding Diagonal Chart
Larger Image

  • Triangle: It can pan out if the current advance stalls below the September 18 peak.

DOW Daily Triangle Option Chart
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Going forward I will also closely monitor IWM since I draw your attention to the fact that here we could have an Ending Diagonal almost concluded.

IWM Daily Ending Diagonal Chart
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Short-Term EWP:

The unexpected aggressive advance from Wednesday's lod strongly suggests that price has established a new swing low, hence instead of selling the rip market behaviour will most likely switch to buy the dip.

Two issues endorse that price should establish a new ATH:

  • The 10 dma of $NYUD: After reaching the oversold line, on Wednesday it displays a positive divergence. Hence Odds favour that price has established a new swing low.

NYSE Advance/Decline Volume versus SPX Chart

  • The McClellan Oscillator after a double close below its lower Bollinger Band it has recaptured the zero line. In spite of not having displayed positive divergence in the MACD histogram nor in the RSI (5), it looks probable that we do have a breadth thrust that should allow a new ATH.

NYSE McClellan Oscillator Chart
Larger Image

Lets move on to the SPX 60 min chart:

From last Wednesday's lod we almost have a straight line with a gain of 57 handles, obviously this move is quite extended so odds favour some sort of consolidation / pullback that will dependent on the news coming from Washington during the weekend.

If we have good news SPX will probably open with a gap, but instead of a gap and go it might be an exhaustion gap.

If we don't have good news this Sunday, since the deadline for the "debt ceiling issue" is next Thursday and it is probable that some type of an agreement will be reached before the deadline, on Monday we could have the beginning of a pullback with a potential target in the range 1690 - 1678 (Wave B) which will be followed by a wave (C) that will establish a new ATH. This up leg should be either the wave (V) of the EED option or the wave (III) of the ED option.

SPX 60-Minute Chart
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Friday's negative divergence of NYUD favours the latter outcome

NYSE Advance/Decline Volume Chart

I have begun posting on Stocktwits/Twitter short-term trading setups. Now I am long $SPXU with a stop at 19.77 and $EUO with a stop at 17.56.


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