My son is playing a tennis tournament so I don't have much time for the weekly update. I will just iterate the already discussed potential ending pattern of SPX (Elliott Wave exhasution pattern) and suggest that XLF may also be unfolding the same pattern.
A bearish quarterly OPEX has created a bearish price pattern with plenty of daily reversal candlesticks. As you can see in the chart below it stands out the huge engulfing candlestick of NDX.
However the internal structure of the decline from the March peaks is suggesting that price is unfolding a corrective pattern. For NDX IWM and SPX it looks probable a Zig Zag. Obviously the size of the pending wave (C) down will depend upon if SPX confirms a potential Double Top.
Regarding XLF if during the expected pullback price breaches the January high located at 22.15 then maybe this down leg could be the wave (IV) of an Ending Diagonal, which began at the October 2012 low. The target would be located in the range 21.67 (50 dma) -21.52 (Gap that can be filled).
If the Ending Diagonal pans out it could complete a Triple Zig Zag from the March 2009 low opening the door to a major reversal.
This ending pattern would be aligned with the same idea that I have been discussing for SPX. If this is the case then SPX MUST confirm the Double Top, in which case the wave (IV) of the assumed Ending Diagonal should bottom in the range 1813.50 (November breakout) - 1799.84 (Gap that can be filled).
If instead of the Double Top SPX unfolds a Flat the overall pattern will have to be reassessed.
Obviously one-day reversal pattern is not conducive yet beforehand of a penetration of the March 14 low but Momentum and Breadth indicators are suggesting that al least we should expect further weakness ahead.
- The daily RSI is displaying a negative divergence while the MACD has not cancelled the bearish signal cross . If the Stochastic rolls over then odds would favour more downside action probably until both the Stochastic and the RSI (5) enter oversold zones (A positive divergence would help to identify a bottom).
- I will monitor the McClellan Oscillator since it will have to remain below the zero line and hopefully cross the oversold line in order to increase the odds of a bottom.
- The 10 dma of the NYSE Adv-Dec volume as well is displaying a negative divergence. Usually, during a correction, when it approaches the oversold line price is expected to establish a bottom.
- Lastly it would be nice to have in the weekly time frame a spike of VIX above the 200 wma, since in the recent past it has been a reliable buy equity signal.
Next week I will be looking to go long 3x Bear ETFs (SPXU, TZA, FAZ)