Friday, November 23, 2012

MTU Weekend Ed. - Upswing (11/23/12 close)

The proposed final upswing of the Hope Rally is likely underway as SP500 has rebounded 4.9% from last Friday’s low (1343) to 1409, recovered half of the loss since its September high (1474), and regained its 200-day moving average (1383) as potential support.

SP500 is now approaching key resistance levels. A retest of the low or consolidation is likely next. Potential resistance includes [1] the prior “neckline” around Friday’s high (Chart 1) [2] the Sep-to-Nov downtrend average around 1425 and [3] the 50-day moving average around 1426.

From a wave count perspective, a five-wave advance from the low is approaching its end (Chart 2, blue).  This potential five-wave advance shows up across leading indexes, such as SPX, INDU, NDX and Transports.  If so, a pullback against this initial advance is likely next.

On a separate note, VIX has cheapened significantly on a relative basis due to an increase in realized volatility in recent weeks as well as a decline in implied volatility.

It's also prudent to note the possibility of an uninterrupted advance for the time being.

As discussed in Post Election Plunge (11/9/12), "the price structure of the recent sell-off resembles that of a larger correction in 2011".  If history rhymes, a correction may not be due before SPX clears both the 50-day and 200-day moving averages and all the way to point #6 of the proposed "fractal".  See Chart 3.

Moreover, ES is already over its neckline resistance (Chart 4).