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SPX: Weekly Technical Analysis

The powerful two weeks rally (Hammer + huge Hallow candlesticks) has aborted a larger corrective pattern.

Bulls have reclaimed both the 20 and 10 week moving averages, going forward as long as the 10 wma, which stands at 1816, holds odds favour that on February 5 price has established a swing low and a new upward trend is underway, resembling the ignition of the advance off the October lows, although this vertical move has stretched short-term technical indicators hence I would not rule out a brief pause.

SPX Weekly Chart
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In the technical front we have more positives than negatives

  • Negatives: Weekly Momentum indicators are still negative. The RSI is displaying a negative divergence while the MACD has a bearish cross in force since January 24. This is a clear warning regarding the sustainability of intermediate up trend.

SPX Weekly Momentum Chart
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Positives:

  1. Daily MACD has a bullish signal cross and has turned positive
  2. Daily RSI has broken the trend line resistance and it has recovered above the 50 line (Going forward the 50 line must hold)

RSI (5) is overbought hence a short-term pullback is probable but it would not endanger the up trend as long as the Stochastic remains above the 80 line.

SPX Momentum Chart
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  1. New ATH of the NYSE Adv-Dec Line

NYSE Advance-Decline Line Daily Chart

  1. NYSE Summation Index has issued a new buy signal. Even though I was expecting the RSI to drop into oversold territory before recycling back up, now the next sell signal should occur once the RSI enters the overbought zone.

NYSE Summation Index Daily Chart

  1. SPX BPI as well as issued a new buy signal. Here the RSI (5) is approaching the overbought line hence the odds of a pullback are raising.

S&P500 Bullish Percent Daily Chart

  1. SPX % of stocks trading above the 50 ma has substantially increased from the extreme oversold reading reached on February 5. It has not reached yet the 80 line, where in the past a meaningful correction has occurred but its RSI (5) is overbought hence caution is warranted.

S&P500 Stocks Above 50dma Daily Chart


Reasons that favors a pullback:

  1. The McClellan Oscillator has crossed the overbought line. This is not a timely buy/sell signal as it can go higher but when it crosses the 60 line the odds of a correction raise.

NYSE McClalln Oscilator daily Chart

  1. Hourly RSI and MACD are displaying a negative divergence. If the Stochastic loses the 80 line it would open the door to a possible multi-day pullback.

SPX 60-Minute Momentum Chart
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  1. SPX % of stocks trading above the 10 dma is overbought.

S&P500 Stocks Above 10dma Chart

  1. NYSE Adv - Dec Volume is displaying lower highs while SPX is establishing higher highs (Negative Divergence).

NYSE Advance-Decline Volume Daily Chart

  1. VXX has formed a bullish Falling Wedge (60 Min Chart), If it pans out it would suggest a likely rebound with a potential initial target in the range 44.20 - 44.87.

VIX 60-Minute Chart
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Lets now move to the SPX daily chart.

We can see that the last "resistance" prior to the December 31 high is located at 1844,66 (Gap).

Below we have two clear support zones:

  • 1815 - 1811
  • 1800 - 1794

Due to the strength of this up trend in my opinion it is unlikely that the 50 dma will be breached once again hence probably the overdue correction should be a shallow one (Barring an intraday dip to the 10 dma which would be a "bonus" baying opportunity).

SPX Daily Chart
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Regarding the Elliott Wave count of the advance from the February 5 low, in my opinion, so far price, has unfolded a 3-wave up leg. If as I think probable on Friday price has established a short term top we could have the following options:

  1. Price has completed a Zig Zag, probably the wave (A) of a larger Zig Zag. If 1809 is breached, the assumed wave (B) pullback should bottom in the range 1802 - 1790.

    The theoretical equality extension target for the assumed wave (C) up would be located in the range 1891-1902 (Blue Labeling).

  2. Price has completed the wave (1) of larger impulsive wave (C). If this is the case the wave (2) pullback should bottom no lower than 1809. The theoretical equality extension target would be located at 1898 (Blue Labeling).

  3. From the February 5 low price will unfold a huge impulsive advance. If this count were correct we would be in the initial stage of a large wave (3) up with a theoretical target above 1898. The assumed wave (II) pullback should bottom no lower than 1809. (Red labeling).

I hope the first option is correct one since it would give a great buying opportunity.

SPX 60-Minute Chart
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