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SPX: The Ending Pattern Remains in Force

Bulls are not giving in, but if breadth does not substantially improve both the SP500 and the DJIA have a terminal pattern in play from the October low.


DJIA:

  • Weekly time frame:
    • The weekly hammer is suggesting that odds favor a new All Time High
    • Above the March high we have as resistance the upper Bollinger Band at 18368 then the upper trend line of the assumed wedge

Dow Weekly Ending Diagonal Chart
Larger Image

  • Daily time frame:
    • The narrow Bollinger Bands are suggesting that a large move is coming. Something similar but in the opposite direction of what occurred on December when the Bollinger Bands were also tight
    • Although given that Breadth indicators are weak I doubt it is feasible a move above the weekly upper Bollinger Band

Dow Daily Chart
Larger Image


SP500:

  • Weekly time frame:
    • The next resistance is located at the upper Bollinger Band which stands at 2141

S&P500 Weekly Ending Diagonal Chart
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  • Daily time frame:
    • Within the assumed Rising Wedge there is a potential Bearish Flag therefore here we have to potential reversal zones: Upper trend line of the Bearish Flag = 2133 +/- or the weekly upper Bollinger Band at 2141

S&P500 Daily Chart
Larger Image

If the Rising Wedge pans out the next move to the down side will be sharp and it will most likely retrace the entire advance from the October low


VIX:

VIX is also displaying a reversal pattern (Falling Wedge):

VIX Weekly Chart
Larger Image

Since odds favor more follow through to the upside and we don't know where the last up leg of the assumed Ending Diagonal will top next week I am going to follow:

1. The ratio VIX/VXV: With a drop below 0.805 we would enter the cautionary zone:

VIX versus VXV Chart

2. The McClellan Oscillator:

  • On Wednesday it dropped to the oversold line. It has been the springboard of a breadth thrust
  • Now we have to see if the zero line is reclaimed
  • If the zero line is reclaimed I would wait for a negative divergence of the RSI (5) once it crosses the overbought line

NYMO versus SPX Chart

In the mean time breadth continues to flash warnings:

1. The bearish signal cross of the NYSE Summation Index remains in force:

NYSE Summation Index Chart

2. NYSE New Highs: Since mid March new highs are not expanding any more during the rally attempts while the 10 dma is falling sharply. This is a signal of narrowing leadership among stocks (Bearish signal)

New Highs Chart

 

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