Date: September 2012: SPX: Follow Up of the Short Term EWP | The wave trading

The Bollinger Band set up + the converging internal structure of the pullback off the August 21 high resulted in a “ferocious” break out.

The media justifies the explosion by ECB action.

I justify the price action based upon the missing last wave up of the Triple Zig Zag off the June 4 lows.

Therefore I consider it an ending move. So no need to modify the short-term scenario, BUT a reversal has to occur soon.

I will begin to feel unease if price achieves a weekly close above 1445.

Next week I will pay close attention to:

1. Momentum indicators since:

The RSI should maintain a negative divergence vs the August 20 peak. The MACD must not issue a bullish cross.

2. McClellan Oscillator, which, in the bigger picture is showing huge negative divergences (it is still below its August peak) but in the shorter time frame it helped in suggesting an imminent launch of the current leg up with positive divergence. Now if price is approaching a top I would like to see the opposite (negative divergences).

3. VIX, since if SPX is approaching a top, the “fear indicator” should preferably establish a higher low (Above the August 17 low)

Yesterday it closed at the 20 d MA with a Black Marubozu, hence today we should see a small range body.

Lets move on to the SPX charts.

So with yesterday´s impressive rally we now have price above the upper BB (Note of caution), but at the same time, usually, a “White Marubozu candlestick is followed by a narrow range body hence a higher high cannot be ruled out (I am not saying that if today we get the higher high it is the Top)

Just as an indication the common extension target range for the current wave up is = 1447 / 1475

While in order to consider that this move is over, initially, we need an eod print below 1422

Regarding the EWP form the June 4 low I cannot modify my interpretation. It is an unquestionable corrective structure (Countertrend).

My best count remains a Triple Zig Zag, which means that price is now unfolding the last wave (C) up.

In addition we could make the case that from the July peak price is shaping a bearish rising wedge.

I give a great importance to the area of 1440 – 1445 since if my scenario is correct I don’t want to see price breaking above the upper converging trend line.

Today we have another event risk with the release of NFP then next week we have the FOMC.

Conclusion:

The count that I am working with is on the right track. Price is now involved in unfolding the last wave (C). The corrective structure of the rally off the June 4 low strongly suggests that it is a counter trend move hence price should have not resumed the intermediate up trend. But I will reassess the scenario if price achieves a weekly close above 1445 (As a matter of fact I am already studying other options) For the immediate time frame there is no evidence that this wave is over.

Have a great weekend.