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SP500: Last Chance to Delay The Inevitable Top

Monthly time frame:

  • Even though there is still no indication of a reversal (From the February low we have a sequence of higher lows) the incapacity to sustain a breakout from the February high is flashing a serious warning that the trend is vulnerable
  • Multiple failures could lead to a reversal if price breaches the last higher low at 2068
  • The loss of the 10 mma = 2057 (End of month print) could open the door to a new bearish cycle

SPX Monthly Chart
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Weekly time frame:

  • From the March low price has been grinding higher with an overlapping structure (This is why I have been suggesting that SP500 has been forming an Ending Diagonal)
  • We have the risk that the breakout failure could have a bearish resolution if last week low does not hold
  • However we can see that from the October low the 27 w ma has been tested 7 times preventing the continuation of a potential larger decline. This week we had another successful test (So far)
  • In addition SP500 ended the week with a Doji (During a decline a Doji can establish a bottom)
  • Therefore going forward if the 27 w ma holds SP500 could regroup and have another shot at a new all time high

SPX Weekly Chart
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  • Hence we should have two potential scenarios:
  1. Ending Diagonal is set and done. If next week the 27 w ma = 2079 is breached we could make the case that SP500 has concluded an Ending Diagonal at the May high. If this is the case a Major Top should be in place. The initial target of the ending pattern is located at the October 2014 low (13% decline)

SPX Weekly Ending Diagonal Chart
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However an Ending Diagonal is usually followed by a sharp decline (Impulsive down leg). This has not been the case. In the 60 min chart we can see that the decline from the May high to last Tuesday's lod has unfolded a Zig Zag (ABC = Corrective pattern). Therefore Elliott Wave wise we should not underestimate the probability that this pullback does not belong to a larger downward pattern:

SPX 60-Minute Chart
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  1. Ending Diagonal is still underway: If the 27 wma holds and the 10 wma = 2109 is reclaimed then there could be one more leg up with a potential target 2140 (Trend line that connects the February and May high)- 2151 (Upper Bollinger Band) or even it could reach the upper trend line of the assumed wedge at 2170ish

SPX Weekly Ending Diagonal Chart 2
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If this is the correct ending pattern the McClellan Oscillator must establish a higher low (Above the 10 dma) and a higher high without failing at the zero line. (Similar pattern unfolded at the May low)

NYSE McClellan Oscillator Daily Chart

 

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