Wednesday, 14 November 2012

SPX needs to break resistance now or it will fall harder

S&P managed yesterday to climb 17points from its low at 1371 towards 1388. As mentioned through twitter yesterday, prices needed to have broken the 1390 resistance for the market to continue rising. The market however got rejected at the first important resistance we noted and pulled back sharply and closed at 1374.

On the daily chart we see prices crawling on top of the lower pitchfork support and right on the 200 EMA. Prices should bounce from here towards 1395 where the middle pitchfork resistance lies. From the Elliott wave perspective in the daily chart we see overlapping waves that could possibly be counted as two pairs of 1-2 waves. Prices paused at the 50%  retracement. We could very well be in wave C downwards or in an unfolding impulsive wave. Prices are expected to continue lower.

On the hourly chart, prices move sideways in the lower pitchfork support. The upward thrust at yesterdays session that pushed prices to 1388, was rejected at our resistance and with no clear impulsive pattern. This upward move could very well be just another upward correction before downtrend resumes. It is clearer at the 10 minute chart that the upward move is more like a 3 wave pattern than a 5 wave move. Weakness to break above 1390 confirms that the upward move is corrective. Prices below 1370 could accelerate the decline towards 1360 to complete the impulsive wave. As mentioned in previous posts in the last few weeks, 1300 is the important support level. If the decline from 1474 is corrective, the minimum targets are achieved but no clear impulse upwards is found.

Our main objection regarding the decline from 1474 and whether it is an impulse, is found within the form of the decline from 1474 to 1430. It is in 3 waves and that is why I still count the whole decline as A-B-C. Time will tell if we are correct. Until we see some upward impulsive action, we will be very cautious with trading in the long side. If the market continues to move sideways and eventually breaks 1370, this event will make us wait for a bottom around 1350 where the 61,8% retracement is.

Always trade taking into consideration the support and resistance levels and don't trade with arrogance. Placing stops is the most important step in order to be successful. Never open a position without having considered your stop level. If you need help trading and using my charts, don't hesitate to contact me.

Thank you once again for taking the time to read my thoughts.

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