Yesterday SPX ended the day with an Harami candlestick. An Harami, if it appears in an extended up move, can be considered a warning of a sudden deterioration of the trend, which is probable given the overbought readings of momentum and breadth indicators.

This candlestick “per se” dos not assure a pause, unless today bears achieve follow through to the downside with an eod print below 1622.70

If the “bearish” warning of the Harami is confirmed I ONLY expect a 2-3 days pullback unless bears reclaim the 10 dma = 1611, but even in this case I doubt that the up leg from the April 18 low could be considered over. Keep in mind a simple rule: A move can be considered over only if price establishes a lower high.

Another reason that is suggestesting that price could have established a short-term top is a potential thrust following the formation of a small Triangle (Usually a Triangle precedes the “last up leg” of an EWP).

I maintain the EW count of the advance form the April 18 low, which calls for a Double Zig Zag. If this is the case price has to carry out a “shallow” pullback, with a target no lower than 1614 (0.382 retracement and trend line support) followed by the last wave (Y) up. If the trend line is not breached then the pending wave (Y) would have an extension target in the range 1642-1668

The assumed wave (B) retracement should maintain a visual proportionality with the previous assumed wave (X) pullback, but instead of a downward pattern it could unfold a sideways one (Flat or Triangle)

I am confident that EW wise yesterday´s hod cannot be considered a meaningful top given the obvious corrective internal structure of the up leg from the May 1 lod (A corrective up leg cannot be en ending move)

For this reason if a pullback is underway it should bottom in the range 1618 (similar size of the pullback of the wave X) – 1614

If the trend line is breached then the scenario of an Ending Diagonal could become the front runner option.

VIX is also not suggesting that has established a meaningful bottom; instead it looks more likely just an oversold bounce. In addition the large gap at 13.59 has to be closed in order to consider probable a larger pullback of the equity market. But yesterday´s shooting star is a concern for the equity bears.

In the technical front:

  • We have an overbought Stochastic that could easily issue a bearish cross, while the trend line support of the RSI should be monitored.

  • The McClellan Oscillator is probably more telling; yesterday´s drop is revealing weakness (Distribution). Going forward we have to watch the last higher low at 11. The drop of the Oscillator should allow a negative divergence with the assumed pending wave up of SPX

Regarding the EW count of the advance form the November I maintain the two options that I have been suggesting:

1. Triple Zig Zag:

2. Double Zig Zag:

Enjoy the weekend !!