SPX- Intermediate-Term Outlook

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Bearish Case:

1. If I’ve identified the chart patterns correctly, then my intermediate term outlook is bearish.
2. The ascending wedge identified in Figure 1 (SPX Chart) has major bearish implications.
3. Be aware of the characteristic throwover (whipsaw/false breakout) that the Elliott Wave Principle often cautions against. Apply the 2-day or 3% filters before taking bullish positions or place stops to protect major losses because the moves after wedge penetrations are often significant.
4. Complementing this bearish outlook is the descending wedge on the VIX Chart in Figure 2. The descending wedge implies a potential increase in volatility as VIX penetrates the wedge to the upside. Because VIX and SPX are negatively correlated, a rallying VIX has major bearish implications for the SPX.
5. Resisting Factors:
   
   1) 38.2% Confluence Zone at 1,016.14
   2) Upper Trend line of the Ascending Wedge currently coinciding with the 38.2% Zone identified in point (1)
   3) Significant resisting down trend line starting from the October 2009 peak
   4) 50% Confluence Zone at 1,056.19.
   
   § It appears that the current rally is Wave 5 of the first impulsive Wave. Thus, a rather rapid retracement down to the 860 level can be expected.

Bullish Case:

1. H&S Bottom- SPX penetrated the neckline.
2. The ascending wedge identified in Figure 1 may indeed be a leading triangle in Wave 1 of an impulse.
3. Thus, any correction will be supported by the neckline or the lower trend line of the wedge/leading diagonal.
4. Supporting Factors:
   
   1) H&S Bottom Neckline
   2) Ascending Wedge Supporting Trend Line
   3) 38.2% Confluence zone at ~969
   

Outlook:

• Depending on your risk tolerance, make your moves before/after prices confirm the next relative direction.
• My intermediate term outlook is bearish because the next wave is most likely going to be corrective in both the bearish and the bullish cases.
• Bullish Case: Return move to the neckline- Bearish implications
• Bullish Case: Leading Diagonal in Wave 1- Bearish implications because Wave 2 is corrective in nature
• And I’ve outlined my bearish factors and reasoning under the Bearish Case

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Sanjeet Parab

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