Short term view - limited upside potential, pullback expected soon.
Intermediate term view - the indexes should move higher in June.
The move higher is not a surprise, but much stronger than expected. The implication is that the 20 week cycle low is probably behind us and the markets will move higher for a few weeks. I was really angry at myself that I missed to connect the pieces of information:) it happens.
I still think that the next great buying opportunity will come later September-October with 40 week cycle low. Until than it is time for traders.
The bullish case - wave 2 is finished with a zig-zag lower and huge wave 3 higher has begun - I do not believe this. The retracement is too shallow, no fear VIX at 13, market breadth not even close to oversold levels... the wave lower has the character of wave 4. I do not see signs for an important low.
The bearish case - 08.2015/02.2016 will repeat... I do not see something common between than and now. The move lower is corrective, market breadth has bullish behavior, there is other signs too... I do not see how to spin all this as bearish.
Now what could the pattern be? I see two options:
- higher probability 20 week cycle low(length 13 weeks) behind us with finished zig-zag - in this case the indexes should move higher in June.
- lower probability sharp reversal for a second zig-zag lower and 20 week cycle low(length 17-18 weeks) in the 2-3 weeks.
I think it will be the first option because the move is too strong and fits better with 20 week cycle low.
To explain it simple if you see a corrective pullback staying above 2050 it is a buying opportunity.
TECHNICAL PICTURE and ELLIOTT WAVES
Short term - I see limited upside and the move should finish soon as an impulse around the resistance zone. Impulse means there is more to the upside. The bullish options are - the market throwing a curve ball with expanded flat green A-B-C the market making new high and testing the ATH but still in a correction. The second option when the move lower behaves like wave 4 it is wave 4 and we are seeing wave i of 5(yellow) higher to finish the move since the February low.
Bearish scenario with an impulse is if this is wave c... in this case this is the flat which I have mentioned several times but expanded flat B red for a bigger A-B-C(red) corrective structure. In this case the market should turn sharply lower and do not look back.
Intermediate term - The same on the daily chart. From trading perspective there is no much difference which pattern higher will play out. Expanded flat(green) will test the ATH or slightly overshoot it 2130-2140, wave 5 will move above the ATH something like 2180.
The indicators look positive and does not really support the bearish scenario.
Long term - the indicators look like they want to turn lower and reset. They hint that the market wants to make a turn lower for wave 2.... the chart does not look like the market has started wave 3.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - does not help us at all. They could turn sharply lower to touch oversold levels and to see some fear(the bearish scenario red) or just continue crawling higher and make divergences for intermediate term top(the bullish scenario green).
McClellan Oscillator - above zero, moving higher.
McClellan Summation Index - no useful information....
Weekly Stochastic of the Summation Index - reached oversold territory. It could stay there for a few weeks or turn higher for the swing higher.
Bullish Percentage - no useful information.... technically buy signal.
Percent of Stocks above MA50 - no useful information....
Fear Indicator VIX - complacency... no divergences...
Advance-Decline Issues - no useful information....
Day 6 of the next 40 day cycle. I assume we have 20 week cycle low behind us.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Sell setup at 5... the same story the market moves much easier to the upside than lower. Two days rally wiped out 3 weeks "sell off".
DAX - exactly as expected strong rally from the low. The DAX is much weaker and it easier to see bearish patterns, but if it synchronizes with the US indexes I expect a bullish surprise(green) making one more high to finish some ugly expanded impulse and sell off until September-October for important low.