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SPX: The Consolidation Could be Over

  • It has been an impressive bullish week.
  • Odds should favor the end of the consolidation phase and the resumption of the uptrend.
  • For the short-term time frame Friday's reversal should lead to further corrective action next week.


Weekly time frame:

  • Weekly Oscillators remain a concern. We have an observable improvement as the RSI has bounced off the 50 line reaching the trend line resistance from the December high. Stochastic and MACD remain with a bearish cross.

SPX Weekly Momentum Chart
Larger Image

  • We do have a Weekly bullish Outside candlestick that has engulfed the previous 4 weeks price action. This has allowed to reclaim the 20 w, 5 w and the 10 w moving averages and the breakage of the trend line resistance in force since the December high. The Outside candlestick is suggesting an end of the consolidation phase (Pending confirmation)
  • Barring a still possible Triangle, a pullback in the range 2046-2033 should give an appealing Risk/Reward long setup.

SPX Weekly Zoom Chart
Larger Image

  • It is possible that SPX is forming a large Rising Wedge. If this ending pattern pans out it would open the door to a multi month/year retracement of the rally from the 2009 low.

SPX Weekly Wedge Chart
Larger Image

The lack of impulsive downside price action and breadth are the major arguments that favor a pending end of the consolidation phase.

  • NYSE Summation Index has a bullish cross and the RSI has not entered yet the overbought zone

NYSE Summation Index Chart

  • Weekly Stochastic (5,3,3) has a bullish cross with plenty of room to the upside before crossing the overbought line

NYSE Summation Index Chart

  • Cumulative Tick is clearly bullish

Tick Chart


Daily time frame:

  • In my opinion from the December high price should have completed a continuation pattern with a Zig Zag. If this is the case a potential pullback should bottom in the range 2044-2031 (50 dma - 20 dma). If the 20 dma does not hold then probably we should reconsider the Triangle scenario

SPX D-Flat Chart
Larger Image

If the scenario of a short-term pause is correct next Monday we should see the NYSE TRIN rise above 1, while the bottom of the assumed pullback should be established with a spike above 2

TRIN Chart

Also an increase of CPCE above 0.75 should provide a setup for a long entry

CBOE Options Equity Put/Call ratio Chart

 

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