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SPX: The Path of Least Resistance is Up

Daily time frame:

  • The 100 dma once again has prevented a source of distress for the equity bulls (Fourth time since January)
  • Once the 50 dma has provided a springboard (tested on Wednesday) with the help from the FED, SPX has ended the week back above all the major moving averages.
  • Therefore the conclusion is that Bears have failed to jeopardize the trend, which remains firmly up.
  • Odds should favor new ATH
  • In a potential pullback the range 2093 - 2085 should hold (If bulls have regained the upper hand the 20 dma = 2089 should no be breached)

SPX Daily Chart
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Weekly time frame:

  • As I have suggested in previous posts, so far from the July high, SPX has been rising within the boundaries of a potential Rising Wedge.
  • The assumed Rising Wedge has two possible upper trend lines. Next week the lower one will stand at 2131± while the upper one will stand at 2150±
  • This week wide range candlestick has clearly negated a prolonged corrective phase (The 20 wma has acted as support in the weekly time frame like the 100 dma in the daily time frame)
  • Important price levels:
    • Below we have the support zone with a range 2093 - 2085
    • Above as resistance we have the range 2019.59 (February high) - 2124 (Upper Bollinger band) then the first trend line which next week will stand at 2131

SPX Weekly Chart
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The Ending Diagonal scenario:

An Ending Diagonal is a terminal pattern. If it pans out it could open the door to a multi-month or even multi-year retrracement of the rally from the 2009 lows.

We have two potential Ending Diagonals:

  • A large one has been forming since the July high. The last wave (V) is in progress since the February low and probably it should be unfolding a complex Double Zig Zag which needs more time to be accomplished

SPX Ending Diagonal Chart
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  • A smaller Ending Diagonal can be counted from the December high. As in the previous scenario, in my opinion, it is probable that the last wave (V) will require more time to be completed.

SPX Ending Diagonal Chart 2
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If SPX is forming an Ending Diagonal the major reasons that suggest a prolonged last wave are:

  • AAII Bullish sentiment has dropped to the lowest level in nearly two years. It would be extremely odd that SPX establishes a major top with such a low reading of retail Bulls

AAII Bullish Sentiment 2009-2015 Chart

  • I would rule out a major top if the RSI of the NYSE is not in overbought territory. The RSI after barely crossing the oversold line is slowly reversing to the upside

NYSE Summation Index versus S&P500 Chart

However a bullish signal cross has not occurred yet (The NYSE Summation Index must cross its 10 dma):

NYSE Summation Index Chart

60 minute time frame:

The rally from the March 11 low can only be counted as corrective hence barring a collapse it should fit with the scenario of an Ending Diagonal.

A corrective leg up can morph into multiple patterns. I will consider two options:

  • A Double Zig Zag can be counted as completed. Hence we could assume that SPX has established the wave (A) of a larger Zig Zag up. If this is the case a wave (B) pullback should bottom in the range 2089 (200 hma and 20 dma) - 2077 (0.5 retracement). The following wave (C) up would have an equality extension target in the range 2151 - 2163 (Red count)
  • SPX is unfolding a Triple Zig Zag. If this is the case a shallow wave (X) pullback should bottom around the 2099 zone. Once the wave (X) is in place price will unfold another Zig Zag higher (Blue count).

SPX 60-Minute Chart
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In the mean time NDX should have concluded an impulsive up leg. The impulsive structure gives confidence to a bullish outcome but it should open the door to a larger pullback wave (2) or (B) provided the gap at 4427 is filled. A common spot for a wave (2) or (B) would be located in the range 4411 (20 dma) - 4384 (0.5 retracement)

NDX 15-Minute Chart
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