Monthly time frame:
- On February the 10 mma crossed below the 20 mma. Odds should favor a new bear cycle like the 2000 and 2007 bear markets (Red arrows).
- During a bear cycle there are snapback rallies that fail at 10 mma (Black arrows)
- SP500 is now almost back testing the 10 mma which today stands at 2015
- If by the end of March SPX 500 reclaims the 10 mma the potential new bear cycle would most likely be aborted
- So far we can still consider the advance from the February low a "bear" market rally (countertrend) but we have to remain open-minded, since the strength of breadth may alter what seemed to be the most likely path.
Weekly time frame:
- From the May 2015 high price has unfolded a "corrective" 3-wave down leg (Zig Zag), hence although a Zig Zag can morph into a larger corrective pattern Elliott Wave wise, with a strong breadth, other options could pan out: A completed correction or sideways patterns (Triangle)
- On May a Rising Wedge could have established a major top however the decline has been corrective although with two sharp down legs.
- The issue now is what if SP 500, from the February low, instead of a sudden reversal unfolds another Zig Zag up with the assumed wave (C) reclaiming the 50 wma and closing the weekly January gap down at 2044. If this is the case we could have two scenarios: Price could either stall at the trend line from the July 2015 double top or it could grind higher towards the November 2015 lower high. The latter scenario would most likely kill any bearish ideas while the former one is the "line in the sand" for the scenario of a larger correction.
- So the issue is how will breadth behave considering that now most metrics are in overbought territory but showing a lot of strength.
So lets see what the technical front is suggesting:
- SP500 Advance-Decline Line is approaching its All Time High (Bullish)
- Tick Cumulative is displaying unstoppable buying frenzy from institutions (Bullish)
- NYSE High-Low Index is now well above the 50 line showing that new 52 week highs are expanding (Bullish)
- The McClellan Oscillator has reached the highest reading since March 2009, obviously it is now overheated but this is clearly a breadth thrust (Bullish/Risk of a retracement)
- The Summation Index is surging higher. Heads up with the overbought RSI, although it can remain overbought for an extended period of time. (Bullish / Risk of a retracement)
- SP 500 % of Stocks Above 50 Day Moving Average: It is now getting extremely overbought (Bullish/Risk of a retracement)
- In conclusion the overall breadth thrust is suggesting that the bearish scenario could become questionable (I would give 70% chance of success) but extremes usually lead to a market pullback, hence we shall see if SP500 in the following retracement establishes a higher low or not (A higher low would favor the scenario of a larger Zig Zag higher)
Lets go back to the weekly chart:
- I maintain the bearish scenario with the current up leg being the wave (X) of a potential Double Zig Zag. The assumed wave (X) could top in the range 2021-2044.
- If the Double Bottom measured target at 2085 is fulfilled then the bearish scenario would be seriously jeopardized
- If the 50 w ma is not breached we could have a slanted Head & Shoulder with a measured target at 1487
Daily time frame:
- Friday's Doji, given the extreme overbought readings, could mark a s/t top. If this is the case I expect more upside provided SP 500 does not breach the support located at 1963
- We have two potential targets for the assumed wave (X) either in the range 2017 (Gap fill) - 2023 (200 dma and trend line) or at January gap fill at 2044
- Again if the Double Bottom target is fulfilled we should reassess the overall pattern
- Lastly the odds of a top and reversal would substantially increase if the VIX/VXV ratio drops towards the 0.80 line
