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SP500: Dead Cat Bounce

Monthly time frame:

  • The 10 mma has a negative slope
  • In addition we know have a lower high and a lower low

We should not rule out that SP 500 has begun a corrective phase that could open the door to a 0.382 retracement of the advance from the 2009 low which would coincide with a test of the Double Top break out (2000 and 2007 highs), I am talking about the range 1574-1553.

S&P500 Index Daily Chart
Larger Image

Weekly time frame:

  • Friday's intraday drop below the August low has negated the Triangle scenario
  • Going forward the Head and Shoulder could become the prevailing pattern. The measured target is located at 1611
  • On Friday the August low was temporarily breached but held by eod
  • Below the August low the next support is located at the October 2014 low at 1820. Then below we have the trend line from the 2009 low

S&P500 Index Weekly Chart
Larger Image

  • The decline from the May high is not impulsive (It brings to agreement of a corrective phase)
  • So far we have a Zig Zag in progress with Fibonacci extension targets for the wave (C) in the range 1776 - 1683
  • A Zig Zag can establish the end of a correction or it can morph into a Double Zig Zag / Triple Zig Zag

S&P500 Index Ending Diagonal Chart
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Daily time frame:

  • The wave (C) is unfolding an impulsive decline
  • We should be close to the bottom of the wave (3)
  • Hence I expect a brief turnaround (Dead cat bounce). A wave (4) rebound with a potential target in the range 1950-1972
  • Once the wave (4) is in place one more down leg will conclude the Zig Zag from the May high.
  • We will have to reassess the pattern as a bottom or a large snap back rally will follow.

S&P500 Index Ending Daily Chart
Larger Image

Reasons to expect an oversold bounce:

  • Equity put/call Ratio has reached the upper Bollinger Band (Contrarian indicator)

CBOE Options Equity Put/Call ratio

  • The McClellan Oscillator is oversold and it is displaying a positive divergence

NYSE McClellan Oscilator Daily Chart

 

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