• 3 hours Contrarian Investors Are Beating The Stock Market
  • 6 hours Bulgaria’s Revenue Agency Falls Victim To Biggest Cyber Heist In History
  • 9 hours Amazon Faces European Union Anti-Trust Probe
  • 11 hours Commodities Are Having A Stellar Year
  • 1 day Bezos’ Next Big Project Could Be Worth $100 Billion Per Year
  • 1 day 3,600 Years Later, Climate Change Turns Mammoths Into $40M Market
  • 1 day Tesla, Apple Claim China Is Stealing Intellectual Property
  • 1 day EV Giants Duke It Out For Battery Dominance
  • 2 days Tech Billionaire Takes Aim At Google
  • 2 days Chinese Police Bust Largest Ever Illicit Crypto Mining Operation
  • 2 days Expect A Pullback Before Gold's Next Major Rally
  • 2 days Why Interest On Gold Matters
  • 3 days Ten Extravagant Food Items For The Wealthy Only
  • 3 days Why Saudi Arabia Won't Give Up On The Aramco IPO
  • 4 days $32 Million Crypto Heist Halts Tokyo Exchange
  • 4 days Is A Gold Selloff Looming?
  • 5 days Central Banks Are Stashing Gold And Dumping Treasuries
  • 5 days Three Cannabis Trends Flying Under Investors’ Radars
  • 6 days $1.3 Billion In Cocaine Found On JPMorgan Vessel
  • 6 days Amazon Teams Up With Lady Gaga To Win Over Generation Z
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

Billionaires Are Pushing Art To New Limits

Billionaires Are Pushing Art To New Limits

Welcome to Art Basel: The…

  1. Home
  2. Markets
  3. Other

SPX: The Corrective Pattern Remains Unsolved

A Diverging Market

If all things were equal as we can see in the weekly chart of SPX below there would be no indication whatsoever of trouble ahead. The trend from the November 2012 low is clearly up. The three candlesticks following the March 7 peak (Reversal of Reversal of Reversal) are suggesting that without a lower low (Below 1839.57) odds favour that price is forming a continuation pattern.

SPX Weekly Chart
Larger Image

However the US market is fractured since SPX, DOW, SMH, XLE, XLP and OIH have not established a lower low (XLE and OIH have established new highs) while we have seen serious weakness in IBB which has breached its February low, XLY and NDX, on Thursday they both reached the 0.618 retracement, while IWM has tested the 0.5 retracement. All these sectors have lost the 50 dma.

In the case of the weekly chart of NDX we can see that price has bounced off the 20 wma and the December peak. The weekly candlestick does not give much confidence that the decline is over. If this support does not hold there is not any substantial support that would deter a drop towards the February lows.

NDX Weekly Chart
Larger Image

However the daily Stochastic and RSI (5) are oversold hence odds should favour a bounce.

NDX Daily Momentum Chart
Larger Image

If an oversold bounce is mustered it should not breach the range of the 50 dma - 10 dma, while if despite the oversold momentum indicators Thursday's lod does not hold then price could fill the gap at 3497.60 (Almost 7% drop from Friday's eod print). If this is the case SPX should not be able to maintain the sideways pattern.

NDX Daily Chart
Larger Image

SPX remains stuck in a trading range but there is a latent risk of a Double Top if the March 14 low at 1839.57 is breached.

So far within the trading range dips are bought and rips are sold (On Friday bulls failed to reclaim the 20 dma).

SPX Daily Chart
Larger Image

So we are faced with uncertainties but maybe an Elliott Wave analysis of the pattern so far developed could give us clues.

It is an unquestionable fact that the pattern is corrective therefore it should not endanger the intermediate up trend. The unresolved issue is if price will unfold a Zig Zag (Downward correction) or a Triangle (Sideways correction).

  • Zig Zag option: A wave (C) down is underway from the March 21 peak. If this is the case we are now in initial stages of the wave (III) of (3). Probably the Double top target located at 1795 will be achieved.

Requirement: Maintain the impulsive sequence hence next Monday price MUST not breach Friday's hod at 1866.63 and in the next down leg price MUST establish a new lower low. If we are in the wave (III) of (3) it has to establish a bottom below the 1 x 1 extension target (Below 1833).

The bearish cross of the hourly 50 ma below the 200 ma is giving this option an edge.

This option will be busted if bulls are able to extend the rebound off last Thursday's lod above 1866.63.

SPX 60-Minute Chart
Larger Image

  • Triangle Option: If the Zig Zag option is busted then probably price is forming a bullish Triangle wave (B).

SPX 60-Minute Triangle Chart
Larger Image

Breadth could spoil the Zig Zag option:

  • The McClellan Oscillator since last Wednesday is displaying a positive divergence. It could be a unique issue that might have to do with month and quarter end but could prevent the Zig Zag option if it is a prolonged action with a thrust above the zero line.

NYSE McClallen Oscillator Daily Chart

  • The NYSE Adv - Dec Line looks even more bullish as it has reclaimed the 10 dma interrupting the sequence of lower highs/lows from the peak reached on March 18.

NYSE Adnavce-Decline Line Daily Chart

CONCLUSION:

Opting to remain on the sidelines until we see an end of the erratic sessions might be a sound decision.

 

Back to homepage

Leave a comment

Leave a comment