• 489 days Will The ECB Continue To Hike Rates?
  • 489 days Forbes: Aramco Remains Largest Company In The Middle East
  • 491 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 891 days Could Crypto Overtake Traditional Investment?
  • 895 days Americans Still Quitting Jobs At Record Pace
  • 897 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 900 days Is The Dollar Too Strong?
  • 901 days Big Tech Disappoints Investors on Earnings Calls
  • 902 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 903 days China Is Quietly Trying To Distance Itself From Russia
  • 904 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 908 days Crypto Investors Won Big In 2021
  • 908 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 909 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 911 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 911 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 915 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 915 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 915 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 918 days Are NFTs About To Take Over Gaming?
  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