View: The wave trading

BEARISH DAILY CANDLESTICK vs CHOPPY INTERNALS

Countdown of three major event risks:

NFP (Tomorrow)= – 1 trading day Quarterly Opex (March 15) = – 6 trading days FOMC (March 20) =  – 9 trading days

Logic suggests that there will not be a meaningful pullback in front of the FED announcement, in addition this time we also have Ben press conference.

But given that short-term momentum & breadth indicators are now overbought the odds of a pullback are large. A pullback does not necessarily mean a meaningful retracement.

I will use the SPY daily chart to show you what I expect if we get in the next two days (Today and tomorrow´s NFP day) a pullback.

If price remains above Wednesday’s gap at 152.92 then the corrective up leg off February 26 should extend higher If the gap is closed than the odds will favour a test of the 20 dma at 151.88, but the pullback will be likely corrective and eventually it will be bought again. EW wise I expect price to unfold a Zig Zag off the Feb 26 lod.

Keep in mind that breadth and momentum now is aligned with the bulls so going forward until I don’t see a deterioration I expect that the market behaviour will be buy the dip.

In addition to the discussed breadth thrust SPX daily MACD yesterday it has issued a “buy signal”, hence barring a an immediate failure, the probability of a meaningful pullback are nil.

Probably once the RSI reaches the trend line resistance in force since its January’s peak we should be on the look out of a reversal pattern

For the immediate time frame (1-2 days) due to the following reasons odds of a pullback are increasing:

Equity put/call ratio is getting too bullish

The stochastic of the McClellan Oscillator is overbought and could issue a s/t sell signal

But as long as the McClellan Oscillator does not break down through the zero line, any pullback will most likely be corrective and it will be bought.

Hence until the trend (Higher highs/lows) is not reversed and it gains traction below the zero line I don´t expect anything meaningful to the downside for the equity market

Lets move to see yesterday´s choppy price action:

In the SPX 5 min chart we can see that the marginal higher high was achieved with a 3-wave up leg, followed by a corrective sideways pattern. With this price information we already know that even if bears are able to break down the short-term pivot support at 1539.79 the EWP in progress suggest a shallow pullback.

In addition there is a chance that if the mentioned pivot is not breached yesterday´s sideways moves could have formed a bullish Triangle, which in my opinion could open the door to another Zig Zag higher

I will keep watching TLT and VIX for clues

TLT has an Inverted Hammer (It could mean a bottoming attempt). Here even though I don’t expect the resumption of the intermediate down trend, with the loss of the 0.618 retracement I cannot rule out a retest of the February 20 low, but in the mean time if TLT catches a bid SPX should carry out a pullback

VIX: It is maintaining the divergence vs SPX and it could be forming a bullish falling wedge