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SPX: Weekly Technical/Elliottwave Analysis

The week ended with a "large" Harami candlestick, which has caused short-term technical damage and casts doubts over a false breakout of the January's high.

In my humble opinion SPX remains vulnerable to more downside with a potential target (Weekly time frame) in the range:

  • 1831 (10wma) - 1816 (20 wma)
  • 1799

But due to the fact that both up legs from the October and February lows are corrective this decline should be treated as a retracement prior to the final upswing that could conclude the entire advance from the 2009 low. (Ending Diagonal idea that I have been discussing in the weekly updates. If this is the correct pattern the current pullback should bottom in the lower range of the assumed target zone: 1816 - 1799).

SPX Weekly Chart
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Friday's Inverted Hammer, with the "proviso" that it is unknown the market reaction to Sunday's referendum in Crimea is suggesting that the first down leg of a potential Zig Zag down could be over. If this is the case, provided price recovers above the 20 dma = 1854, I would expect a multi-day rebound with a lower high in the range 1865 (10dma) - 1868 (Usually the equity market should rebound ahead of the FED meeting next Wednesday).

If instead next Monday we have a gap down, probably the next support located at 1834 will not hold and price will most likely enter the Support Zone 1 target box.

SPX Daily Chart
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Reasons for a short-term bounce:

  • Oversold 60 min momentum indicators and a small positive divergence of the RSI. The initial stage of an oversold bounce requires a bullish cross of the MACD

SPX 60-Minute Momentum Chart
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  • Positive divergence of the NYSE Adv-Dec Line (Last Friday no lower low of this breadth indicator while SPX made a lower low)

NYSE Advance-Decline Line Daily Chart

  • Positive divergence of the NYSE Adv-Dec Volume (Last Friday no lower low of this breadth indicator while SPX made a lower low)

NYSE Advance-Decline Volume Chart

  • Positive Divergence of the McClellan Oscillator (Last Friday no lower low of this breadth indicator while SPX made a lower low). If an oversold bounce is confirmed the McClellan Oscillator should not reclaim the zero line

NYSE McClellan oscillator Daily Chart

  • CPCE since Wednesday is hovering around the upper Bollinger Band (Contrarian Indicator)

CNOE Options Equity Put/Call Ratio Daily

Elliott Wave wise, price with a wedge could be completing with a Double Zig Zag the assumed wave (A) of a larger Zig Zag down. If this is the case, provided bulls reclaim the resistance zone 1851-1854, the assumed wave (B) rebound should top in the range 1865 - 1867.

SPX 30-Minute Wedge Chart
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If instead next Monday we have a gap down then maybe we could make the case that price on Friday completed a Triangle wave (X) within a Triple Zig Zag off the March 7 high. The following thrust should unfold a Zig Zag down completing the corrective pattern and likely establishing the end of the correction. The theoretical equality extension target would be located at 1812.

SPX 15-Minute Triangle Chart
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If the wedge pans out the following rebound should establish a lower high for the following technical reasons:

  • The McClellan Oscillator is not "extremely" oversold yet

NYSE McClellan Oscillator Daily Chart 2

  • Nor the 10 dma of the NYSE Adv-Dec Volume has reached the oversold zone

NYSE dvance-Deline Volume Index versus SPX Chart

Lastly regarding VIX lets see if the next buy signal is "triggered" with a weekly spike above the 200 wma (It has occurred five times since 2012). Hence going forward VIX should not lose the support located at 15.77.

VIX Weekly Chart
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The spike above the 200 wma is doable if the double bottom target is achieved:

VIX Daily Chart
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Seasonality is bullish this coming week while the end of March is usually weak.

 

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