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SP500 Follow Up of The Terminal Pattern

Monthly time frame:

  • The rally from the March 2009 is aging but there is no indication of a top yet.
  • So far from the March 2009 low SP500 is up 220%
  • The 10-month moving average can be used as a simple rule in order to delimit a bullish cycle from a bearish cycle. During a bearish cycle the 10 mma acts as resistance while in a bullish cycle it acts as support. Therefore as long as SPX does not print a monthly close below the 10 mma which today stands at 2050 the trend remains up. An end of month print below the 10 mma could open the door to a multi-year bearish cycle with a retest of the break out zone (2000 - 2007 highs) which today is "only" 26% below this month ATH

SPX Monthly Rising Wedge Chart
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  • There have been two potential reversal patterns that have been aborted. The first one with a Spinning Top in December and the second one with a Shooting Star in April
  • So far SP500 is attempting a break out from the February closing high of 2104.50, with four trading days left to end the month of May we shall see if this break out can be sustained or it fails once again.
  • From the October 2014 low we can observe that price is rising with Zig Zags (Absence of impulsive up legs) this can be a warning that SPX is forming an ending pattern (Ending Diagonal)
  • Although it is an "aberration" to consider that SP500 is involved in a topping process, if the suggested Ending Diagonal pans out odds should favour a complete retracement of the advance from the October 2014 low in which case price would breach the 10 mma, the last higher low (December low at 1972) and the trend line support in force since the October 2011 low. If this is the case a new bearish cycle could be underway.

SPX Monthly Zoom Chart
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Weekly time frame:

  • The observable fact that price is rising with Zig Zags increases the odds that SP500 is forming an Ending Diagonal
  • Probably we are halfway in the last wave (V). But when the Ending Diagonal is set and done the following move to the downside should retrace towards the origin of the ending pattern, which is located at the October low.
  • The 27 week moving average which is acting as support, once/if it is breached it will signal a serious warning of a potential trend reversal

SPX Weekly Zoom Chart
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  • The weekly Shooting Star is warning that a pullback could be in the cards next week provided the horizontal support at 2120 were breached.
  • If this is the case a pullback could easily decline towards the 10 wma = 2101 (1% drop). If the lower converging trend line is not breached I expect another Zig Zag higher which should conclude the Ending Diagonal either at the upper Bollinger Band which today stands at 2152+/- or at the upper converging trend which stands at 2170 ish

SPX Weekly Ending Daigonal Chart
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Daily time frame:

  • From the May 6 low, assumed bottom of the wave (IV) of the Ending Diagonal, price is unfolding a Zig Zag (ABC). I don't know if the Wave (C) is already in place.
  • Friday's Inside Day does not give enough edge for the beginning of a pullback, since price could be involved in a continuation pattern as it can be seen in the 60 minute time frame.
  • Once the wave (C) is in place this Zig Zag could morph into a Double Zig Zag (Price will unfold a second Zig Zag) provided the following pullback is corrective and does not breach the 0.618 retracement, which is located at 2104. A larger pullback could test the 50 dma and even the rising trend line of the Ending Diagonal. Today it is impossible to know in advance the size of a potential pullback but I would give more odds to the "support zone 2" where we have the 20 dma and the 0.5-0.618 retracement.

SPX Daily Chart
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60 minute time frame:

  • Since last Tuesday's peak price has been moving sideways suggesting a potential Triangle (Continuation pattern)
  • If the Triangle pans out the measured target for the following thrust up which would conclude the Zig Zag is located at 2145

SPX 60-Minute Chart
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