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SPX: It is a Tough Environment

A larger bounce until Wednesday is probable afterwards it will depend on how buyers react to next Thursday's ECB monetary policy resolution regarding a broader asset purchase plan.

As discussed in my last update weekly oscillators are causing uneasiness. This week the confirmation of the bearish cross of the Stochastic and the MACD are a major concern.

SPX Weekly Momentum Chart
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The sell signals if they are not erased could lead to a bearish resolution (Most likely confirmed if next week the stochastic loses the 80 line)

Elliott Wave Analysis:

The bearish case can subsist with a potential Ending Diagonal completed at the December high. If this is the case the current rebound should not reclaim the 50 dma = 2046

Odds would favor a rapid decline once the 200 dma = 1967 is breached and most likely the October low will not hold. Probably SPX will move along the course of a multi-month correction.

SPX Ending Diagonal Top Chart
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In order to consider viable a bearish scenario, Elliott Wave wise, we need an impulsive decline. We don't have a 5-wave decline but we could make the case that last Friday's price completed a Leading Diagonal. If this is the correct scenario the current bounce MUST not reenter inside the space delimited by the lower trend line of the assumed Ending Diagonal hence the potential target box for this bounce should be located in the range 2040 - 2053:

SPX 60-Minute Chart
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However even if the Leading Diagonal is correct, until now potential reversal patterns have always been aborted, there is the prospect of a potential Triangle that could pan out if the current bounce breaches the 2064 area and price maintains the sequence of lower highs / higher lows.

If the triangle pans out we shall see if the following thrust stalls at the trend line resistance that connects the July 3-November 28 - December 5 - December 29 highs or it achieves the measured target (115 handles)

SPX Diagonal Chart
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A third potential scenario could be the possibility of an Ending Diagonal:

SPX Diagonal Chart
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Given the reasonable uncertainty of the final outcome in addition to next Thursday ECB meeting, huge event risk, I can only say that it is advisable a step by step approach.

Hence for the immediate time frame the bias should be bullish due to Friday's Outside Day reversal candlestick as long as the 100 dma = 2007 holds.

If bulls are able to breach Thursday's hod a Double Bottom could open the door to a measured target at 2054 although we have stiff resistance in the range 2046 (50dma)-2049 (20dma). What seems achievable is at least a test the trend line resistance off the December high at 2041 +/-, which coincides with the 0.5 retracement. Then we shall see.

SPX Zoom Chart
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