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My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on…

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SPX: Setting a Potential Ending Pattern

Monthly time frame:

  • So far there is no indication of a trend reversal, as the potential bearish December's Spinning Top in order to be confirmed requires an end of month print below 1973. Therefore the December candlestick has to be considered as indecision between bulls and bears.

SPX Monthly Chart
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Weekly time frame:

  • From the October low we have a sequence of higher high/low therefore also in this time frame there is no indication of a trend reversal.
  • In spite of the 2 weeks decline it finished the week considerably above the low and the 20 wma, printing a Doji. The long lower tail can be considered a constructive pattern due to the buying interest at the dip.
  • We are at a resistance zone 2046 - 2054.
  • If next week this resistance zone were reclaimed odds would favor a move back at the previous high.
  • If instead bulls fail odds would favor a retest of the support zone which has a range 2019 - 2014.
  • We can draw two trend lines: the upper one connects the July-November-December higher highs while the lower one connects the December-January higher lows. We can deduce that as long as the lower trend line is not breached odds should favor a move towards the upper trend line with new ATHs.
  • If we add a third trend line that connects the October - January low, if the boundaries are not breached then we could make the case that price is forming a Rising Wedge. If this pattern pans out it could have bearish implications over multiple time frames.

SPX Weekly Chart
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Although the long-term trend remains up we must be aware that weekly oscillators are not in agreement with the constructive price development. It stands out the RSI negative divergence in force since July 2014 and that the RSI trend line from the October low has been breached. If next week the MACD rolls down and issues a bearish cross the short-term outlook would be damaged.

SPX Weekly Momentum Chart
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Daily time frame:

  • At first sight we could consider the sharp down leg off the December high a failed breakout, however since the internal structure of the decline has unfolded a corrective move and so far we have a higher high and a higher low for the time being, it would be prudent to convey that the trend remains up biased.
  • However probably the January 6 low is not another "V" bottom
  • Friday's candlestick with the eod print at the 50 dma (Most likely saved by the closing bell) could be interpreted as a consolidation of the gains achieved by the two previous days.
  • Last week price action should have counterbalanced the sharp decline off the December high but does not exclude the odds of a larger corrective decline within the scenario of maintaining the sequence of higher lows if the 10 dma is not reclaimed.
  • Therefore if next Monday the 50 d ma does not hold then I will be looking for a reversal signal either at the gap fill or at the Trend Line 3
  • Hence my preferred short-term scenario calls for a Zig Zag higher from the January 6 low.

SPX Daily Chart
Larger Image

Price could be forming two potential patterns:

  • The suggested Ending Diagonal:

If price is forming an Ending Diagonal, since the two trend lines must be converging, from the November high price should have unfolded a Running Flat wave (II), therefore the current up leg must unfold a Zig Zag or a Double Zig Zag higher (No lower low is allowed).

SPX Daily Ending Diagonal Chart
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  • Triangle:

If the next up leg establishes a lower high then odds would favor a Triangle provided price maintains the sequence of lower highs/ higher lows:

SPX Daily Triangle Chart
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Either the wave (V) of the Ending Diagonal or the thrusts following the completed Triangle are candidates to establish a Major Top.

60 Minutes time frame:

If next Monday Friday's lod is breached a Zig Zag down would have an equality extension target at the gap fill. If this is the case I will be looking for to cover my short (I am long SPXU) and seek a long entry in UPRO.

It is noteworthy to mention that the 50 hma has crossed below the 200 hma. If this bearish cross were not erased probably the upside would be limited favouring the Ending Diagonal scenario.

SPX 60-Minute Chart
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Next Monday I will be pay close attention to the NYSE TRIN, since if we have follow through to the downside, a reading above 2.00 should be the prelude of a potential short-term bottom.

TRIN Daily Chart


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