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Weekly Technical/Elliott Wave Analysis (SPX, DJIA, NDX)

Don't Count your Chickens Before they're Hatched

We have a very aged bullish trend but in my opinion we don't have yet a confirmation that a new bear market has been kicked off.

This trend can still be prolonged but I am confident that eventually during the second quarter (sooner rather than later) price will establish a Major Top.

Despite the weakness of "momentums stocks", NDX, RUT and IBB; SPX and the DJI (Also XLE) so far remain "intact". Even though due to Friday's "huge" failure further short-term weakness is clearly in the cards.

In the monthly time frame we have three clear levels to watch:

  • 5 mma = 1846

  • 10 mma = 1781

  • Pivot Support (February's low) = 1737.92

Once 173.92 goes God only knows where SPX will be heading but I Would expect at least a back test of the long-term former resistance now support located in the range 1576 - 1553.

SPX Monthly Chart
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We can do the same exercise with the DJI and NDX (They also have the pivot support located at the February lows:

  • DJI Pivot Support = 13340.69

Here we can see that if the October 2007 high (Former resistance, now support) does not hold, which also coincides with the major trend line support from the March 2009 low the fall can be much larger.

DOW Monthly Chart
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  • NDX Pivot Support = 3418.88

In the case of NDX this is a twofold critical level since it coincides with the 10 mma. Once it is breached odds should favour at least a drop towards the major trend line support in force since the November 2008 low.

NDX Monthly Chart
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We can do a similar exercise in the weekly time frame using the 27 wma:

  • Lets see first the weaker one (NDX). Here we already have a sequence of lower highs/lows therefore despite the fact that the decline is unfolding a corrective pattern we have a yellow flag.

If going forward the 27 wma does not hold there is only "thin air" above the pivot support hence odds should favour a drop towards the February low and maybe price could be forming a Head & Shoulder reversal pattern.

For the shorter time frame the weekly Inverted Hammer candlestick is suggesting that next week there should be a bottoming attempt.

NDX Weekly from June 2012 Chart
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  • In the case of the DJIA if it loses the February low it has the risk of forming a Double Top with a target at 14000 +/- but in the mean time we cannot say that this is the most likely path since it is still hovering at the ATH and no support has been breached yet.

DOW Weekly from June 2012 Chart
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  • SPX weekly Shooting Star is "declaring" a big failure at the last breakout and probably we should expect some follow-through to the downside but how in the heck can we consider that price has established a major top when price has not breached any support yet?

SPX Weekly from June 2012 Chart
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In the SPX daily chart we can see that after a pop higher price was rejected at the suggested trend line that connects the December and March peaks. The selloff was kicked off once price was not able to remain above the last breakout area. A small bounce at the eod achieved a recovery at the 20 dma. Usually after such a powerful sell off the following day a small range body is probable, but if next Monday the 20 dma does not hold price will most likely fill the gap at 1857.62.

Going forward it is probable that since SPX has a breakout failure price will test the consistency of the support of last month trading range. If it does not hold and my scenario is correct price will have to establish a bottom in the range 1825 (100 dma) - 1799.84 (Gap fill).

SPX Daily Chart
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Regarding the discussed potential ending pattern of the corrective rally from the March 2009, in my opinion it is still a valid option if the current pullback, assumed wave (IV) bottoms in the range 1829 - 1813.

SPX Weekly Double Zig Zag Chart
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If we now analyse the short-term pattern from the February 5 low we can only come to the conclusion that price has unfolded a 3-wave up leg (Corrective move) therefore if we fit this Zig Zag within the long-term time frame pattern, Elliott Wave wise, I can rule out that a major top is in place.

Moreover in the hourly time frame we can see that the 50 ma is still above the 200 ma and both have a positive slope.

Few thoughts regarding the short-term time frame.

  • Last Friday price maybe thanks to the closing bell halted at a speculative trend line from the February 5 low, which coincides with the 0.618 retracement of the previous up leg.

  • However such a sharp decline rarely will be only a one-legged affair hence I expect at least a 3-wave down leg.

  • Above the March 14 low we still have 2 gaps that can be filled/closed. If the gap at 1849.04 is closed (It coincides with the December peak) odds should favour a breakthrough the March 14 low at 1839.57.

  • If the March 14 low at 1839.57 does not hold the next potential bottoming area is located in the range: 1817 (0.5 Retracement) - 1799.84 (Gap that can be filled and 0.618 Retracement).

SPX 60-Minute Chart
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Regarding the decline from last Friday's hod, the sharp selloff can be due to a completed rising wedge. In my opinion the internal structure is not impulsive (I can count an 11-wave structure), probably price has unfolded a Double Zig Zag wave (A). If a short-term bottom is in place which will be confirmed if price reclaims the last lower high at 1870.57 then I expect an oversold rebound with a target either at the 0.382 retracement or in the range 1880 (0.5 Retracement) - 1884 (0.618 Retracement).

SPX 5-Minute Chart
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I would have liked to analyse breadth and momentum indicators but I don't have time (My son is playing the semi-finals in a tennis tournament and afterwards I want to spend time studying the market)

But one last thing, which, is very important due to the correlation with the equity markets (RISK ON / OFF) is to see if the corrective rebound of USDJPY from the February 4 low can extend higher with a Double Zig Zag.

USD/JPY 2-Hour Chart
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