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TheWaveTrading

TheWaveTrading

TheWaveTrading

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SP500: Brighter Ourlook

Weekly time frame:

  • SP 500 breached the support at 2040 (And the assumed neckline of the widely watched Head & Shoulder), dropped towards the 50 wma = 2024 but instead of gaining traction to the down side it recovered the 2040 support line ending the week firmer with a bottoming tail (Doji). In my opinion The bearish Head & Shoulder has now a low probability of occurring
  • Although it is a bit premature to have confidence on the next directional move, odds should favor the scenario of a "mild" retracement of the February up leg within a larger uptrend (Extension of the February advance)
  • Due to the overlapping decline I am inclined to raise the potential "bottoming" zone in the range 2024-1994
  • If next week the support at 2040 holds then the corrective decline could be over.

S&P500 Weekly Chart
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Daily time frame:

  • Even though the short-term trend remains down (From the April high we have a sequence of lower lows/highs and price is below the 10 dma, 20 dma and 50 dma) the overlapping structure of the decline is suggesting that SP 500 is involved in a pullback instead of a meaningful setback.
  • Is the low in? I am not sure but if Friday's gap up is not closed (2040.04) then the short-term outlook should improve for the bulls
  • However there is still a lot of work to be done since a break of 1085 is needed in order to reverse the down trend

S&P500 Daily Chart
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  • Daily oscillators are not screaming buy yet: MACD is negative, RSI is below the 50 line and it does not display a positive divergence at Friday's lod. Hence next week we need to see a substantial improvement of momentum (Especially OBV and RSI must breach their trend lines)

S&P500 Weekly Momentum Chart
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60 minute time frame:

  • If the Bullish Flag is done Friday's gap is the support that must hold. It seems probable that from Thursday's lod price should unfold at least a 3-wave up leg. If this is the case (Buying opportunity) we shall see how price behaves once/if it reaches the upper trend line of the assumed flag. A failure would most likely result in another lower low. Breaking through the trend line would improve the outlook provided SP 500 reclaims the 200 hma = 2075

S&P500 60-Minute Chart
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  • I suggest to closely watch NDX (QQQ) and IWM since both have constructive short-term patterns:

a) NDX (QQQ): Potential Double Bottom:

NDX 60-Minute Chart
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b) IWM: It could have concluded the corrective decline with a 3-wave down leg:

IWM 60-Minute Chart
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  • VIX should favor a bullish resolution. Here we have a reversal with a failed breakout

VIX Chart
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In the technical front: It is simple. Without a breadth thrust the pullback will extend lower

  • The McClellan Oscillator on Thursday dropped below the oversold line. On Friday It recovered quite strongly. If a bottom is in place next week bulls need a breadth thrust which would allow the Oscillator to reclaim with authority the zero line by breaking through the trend line from the March high otherwise a trend reversal cannot occur

NYSE McClellan Oscillator Daily Chart

 

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