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SPX: Follow Up of the Short Term EWP


Brief update:

  • The daily RSI (5) is overbought but it does not display a negative divergence.

  • Daily Stochastic is overbought.

  • As long as the RSI (14) remains above the 50 line any pullback will not endanger the trend.

  • MACD has a bullish cross.

SPX Momentum Chart
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Initial conclusions from the momentum's picture:

  • The advance off the October 9 is extended hence a pullback is due.

  • The absence of negative divergence suggests that odds favour more "business" to the upside.

  • As long as the RSI (14) remains above the 50 line and the MACD does not cancel the new bullish signal cross the expected pullback will not endanger the trend.

As I have discussed the negative divergences that are displaying weekly RSI & MACD, Summation Index and BPI is suggesting that the "mature" advance from the 2009 lows could be involved in a topping process.

Usually the ending pattern of an extended advance is either a thrust following a Triangle or an Ending Diagonal.

In the case of SPX I am following two potential Ending Diagonals. Keep in mind though that ED are very tricky to predict.

  • Preferred Ending Diagonal: If this pattern is correct price is either concluding the wave (a) of (III) (Blue count) or it will conclude the wave (III) (Green count) depending if the current advance stalls below or at the black converging trend line.

Obviously, if bulls achieve a break out above the trend line the Ending Diagonal scenario will be aborted.

SPX Daily Chart
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  • Expanded Ending Diagonal: If this is the case in my opinion price would be concluding the wave (a) of (V).

SPX Expanded Ending Diagonal Chart
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Short -Term EWP:

From the October 9 lod, in my opinion, price is unfolding a Double Zig Zag. If price does not move above 1742 +/- (Converging trend line resistance of the assumed ED) then this up leg should be the wave (A) of (III) ED option or the wave (A) of (V) EED option.

So if the DZZ count is correct we are in the final wave (Y). The 3-wave up leg off yesterdays lod has tangled a bit the s/t count since the wave (Y) has to be either impulsive or it has to form an ending diagonal. Given the overbought readings I favour the wedge scenario.

Once the assumed wave (A) is in place and if my preferred scenario is correct the following pullback should not substantially breach the 200 ma located at 1696. (In the daily chart it would coincide with the 20 dma = 1694)

SPX 60-Minute Chart
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Hence in the following pullback the McClellan Oscillator must remain above the Zero line.

NYSE McClellan Oscillator Chart

Often three event risks are potential "turning windows": FOMC day, OPEX and NFP day.

Today we have monthly OPEX while next Tuesday the postponed NFP will be released.

Have a great weekend.


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