View: DAILY 0705 | The wave trading

The odds that SPX is forming a bearish weekly candlestick are large; so far we have a Spinning Top.

Today´s unknown traders reaction to NFP release adds a lot of uncertainty regarding the short term outcome of the EWP in progress.

But we “know” that:

Since the internal structure of the rebound off the June 4 low is corrective, we are dealing with a counter trend bounce. In addition given the overall pattern unfolded off the April 2 top it is reasonable to expect at least one more down leg that should have as a target the range 1248 – 1207 And if my long-term road map is correct the pending wave (C) down can establish an important bottom.

In the weekly chart below I highlight the potential path:

I am quite confident regarding this intermediate time frame outcome.

Regarding the short-term price action my confidence on the exact location of price within the corrective EWP in progress is smaller.

I believe that price is unfolding a Double Zig Zag but until we see the internal structure of the next pullback there is no way that we can have assurance that price is completing the wave (A) of the second Zig Zag or the wave (C) which would imply that the bounce is over.

What I can say is that if the pullback is corrective and it does not breach the 50 d MA = 1340 SPX then price will most likely undertake the last wave (C) up with a target in the range 1389 – 1406 (SPX).

In the case of NDX, the idea that price should unfold an upward Zig Zag off the June 28 higher low looks ok, if in the next pullback, price does not breach the 0.618 retracement

While for the DOW (and SPX as well) the internal structure is open to both interpretations:

In addition to the information that will be given by the price in the next pullback (which I expect as early as today), market breadth and momentum indicators should give valuable information regarding the longevity of the current rebound.

Watch the RSI trend line support and the 50 line

Watch the McClellan trend line support and if the MA bullish cross is reversed.

Also I am anxious to see if the VIX wedge projects plays out in which case SPX should establish with a  higher high the top of the rebound.

This weekend I am out with family and friends so I will not post the technical update on Sunday.

Have a great weekend everyone.