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TheWaveTrading

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SP500: Bears Need a Lower High (Dead Cat Bounce)

Weekly time frame:

  • The decline from the April high has found a temporary halt at the support located at 2040.
  • SP 500 ended lower for the second week in a row for the first time since the beginning of the rally from the February low, however the weekly Doji is suggesting a potential rebound which should fail to reclaim the resistance located at 2074.
  • Below 2040 we would have the confirmation that the up leg from the February low is done (Assumed wave A) and consequently a larger pullback would be underway.
  • In my humble opinion a wave (B) pullback should establish a higher low.
  • Below S1 = 2040 we have the 50 wma = 2026 and S2 = 2020. I would not rule out a decline towards the 20 wma = 1994
  • If the 20 wma does not hold the next major support S3 = 1947

S&P500 Weekly Chart
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Daily time frame:

  • On Friday after a brief dip below the 50 dma SP 500 managed to achieve a reversal day with a Hammer candlestick. This bullish price action should allow a larger rebound next week.
  • The immediate resistance is located at Wednesday's gap down = 2063 then we have the 10 dma = 2071 and the 20 dma = 2078
  • The 10 dma has crossed below the 20 dma, which is a bad omen.
  • If, as I think likely, it is an oversold bounce it should fail to reclaim the 20 dma.
  • If this scenario plays out the following down leg can conclude the corrective phase with a potential target in the range 1995 - 1947

S&P500 Daily Chart
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  • If the expected rebound fails at the 20 dma price would be shaping the right shoulder of a Head & Shoulder. This bearish pattern has a measured target at 1065

S&P500 Daily Chart 2
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  • Daily oscillators are bearish although the oversold Stochastic and RSI (5) are aligned with the short-term scenario of an oversold bounce

S&P500 Daily Momentum Chart
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  • The extreme high reading of the CBOE Equity Put/Call ratio is also strongly suggesting that next Monday odds should favor follow through to the upside

CBOE Options Equity Put/Call Ratio Daily Chart

60 minute time frame:

  • The bearish crossover of the 50 hma below the 200 hma is increasing the odds of a larger decline
  • On Friday SP 500 completed a falling wedge hence it is probable that from the April high price has concluded the down leg with a Double Zig Zag.
  • SP 500 has an immediate resistance at the 50 hma = 2059. The next resistance is located at Wednesday's gap down at 2063
  • If the current rebound is a wave (B) it should top in the range 2072 (200 hma) - 2075 (0.5 retracement)
  • If price breaks the falling trend line from the April top it would be game over for the bears

S&P500 60-Minute Chart
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In the technical front:

  • The SP 500 % of stock above the 50 dma is in a clear down trend with plenty of room to the downside before crossing the oversold zone

S&P500 Stocks Above 50dma Daily Chart

  • The NYSE Summation Index has a new sell signal in force. Often the next buy signal occurs when the RSI enters the oversold zone

McClellan Summation Index Daily Chart
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  • The ratio VIX:VXV is falling back towards the 0.800 line. Usually when the ratio falls below the 0.8 odds favor a reversal

VIX versus VXV Daily Chart

 

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