SPX - a new short term alternative

I started from a clean slate, trying to count all the waves on the ES (SPX futures) since mid-December.

One of the things that bothered me about the impulsive counts so far is the lack of a proper impulsive, powerful move during this entire period.

One possible way to interpret this rather difficult-to-count period has surprised me. It could be that the period until Jan 26th was a long wave 1. That would put us in the initial stages of a 3rd wave. With most EW analysts focused on completion of bearish long-term counts, this wave count could surprise people and provide the acceleration at the "point-of-recognition" that has been missing so far.

Although my Q1 2012 Forecast calls for an upcoming consolidation period, I think its important to track this as a possible wave count as a valid possibility if the next correction doesn't go beneath 1300-1315.

SPX Q1 2012 forecast

After catching the End of the Panic of 2011 I have been nervously carrying a bullish bias with minor modifications to the wave counts for almost 8 months now. It has been difficult psychologically. The market truly has climbed a wall of worry during this period, as it has encountered stiff resistance with a very negative macro background.

Over the past 8 months various technical resistance points has been methodically and decisively overcome. While staying alert to bearish possibilities, all this while my main count has remained bullish. 

Technical analysts must always maintain respect for the price action and allow the wave structures to inform their bias. In that spirit, note that last week's rally vaulted over the trendline connecting the Jan 2008 and April 2011 tops. Structurally, this is a very bullish event that is difficult to ignore. Coupled with the fact that the Nasdaq and DJIA have been "leading"  this advance, and that the Nasdaq already taken out both the previous highs, I can now confidently focus to the most bullish of the three bullish counts that I have been carrying in 2012.

In the chart above I layout a roadmap for the rest of Q1 2012. I think the market will now start to digest the gains of the past month. I expect the month long wave (3) to complete its internal wave 3 soon and correct in wave 4. In doing so it must stay above the wave 1 extreme at 1285. Wave (3) should then complete with a rally in wave 5 to challenge the 2011 highs at 1370. Beyond this we should see a wave (4) correction and another rally in wave (5). 

The internal structure of these upcoming waves is too far out to be predictable. 

For the next quarter I expect to see support in the 1285-1300 range, and resistance in the 1350-1375 range. The overall structure should be sideways, perhaps with a slight upward bias. 

I also will keep an eye on the VIX as it finds support in the "Greed" zone. Any visits to the "Fear" zone should provide buying opportunities for the SPX.

SPX update - 2012-01-27

The market has scored a "direct hit" on the incredibly important trendline joining the Jan 2008 and May 2011 tops. It is a bit surreal how many times these trend-lines draw a reaction, but it is what it is.

Initial support is around 1296. Failure to vault over the blue trendline, coupled with the overbought condition can easily lead to significant correction develop in this area.

GDX B wave Diametric

US 30yr Bond update: 2012-01-24

SPX update: 2012-01-24

Here is an update on the bullish Elliott Wave counts posted here a couple of days ago. 

Although SPX could have put a top in yesterday, and has opened slightly lower today, I don't see enough divergence on technical indicators to confirm a top. I think the market has the potential for one more rally, but technicals are overbought and the market is ripe for a correction. Tom Demark (a good market timer) predicted a top today on Bloomberg TV. 

The blue trend-line in the chart below connects the Jan 2008 and April 2011 tops and it should offer important resistance to contain 2 out of 3 counts that are in focus (on a closing basis). In the chart below these two higher probability counts are marked in RED and GREEN. 

The RED count completes wave (3) of III. Wave (4) should not overlap with wave (1) so this count would be invalid below 1266.73

The GREEN count completes wave 1 of (3). This count allow a correction all the way to 1202, though in practice in should find support around 1260

If the market vaults over the1330-1340 area contained by the blue trendline, we will shift focus on the count in YELLOW which  would put us in an incredibly bullish wave (iii) of 3 of (3) of III. Such waves do occur from overbought conditions and markets stay overbought for a while as third waves accelerate. 

There is a potential for a VIX reversal here. It is at support line since April 2011. RSI shows a positive divergence. A complete Elliott Wave pattern (Ending Diagonal) is seen. Closing above 24 will be positive for VIX and bearish for the SPX.

SENSEX overbought at resistance

Overbought conditions exist in most markets after a great start in January. In the previous Sensex update I pointed out the positive divergence in RSI and the possibility of a long term bottom. Now the market is overbought and at channel resistance. A different wave structure allows the possibility of a 'c' wave lower to complete a Double zig-zag correction. This move could fill the election gap from 2009.

Note that I have used an India ETF (INP), not the Sensex itself in the chart below.