Friday, December 18, 2015

MTU Weekend Ed. - Golden Cross, Gap Fill, Santa Rally (12/18/15)

* SP500 to deliver a golden cross, consistent with a wave [4] triangle interpretation.
* Transports approaches a major retracement support, counts well as a wave [4] pullback, and suggests at least a meaningful rebound.
* Near term, the minimum downside requirement for SP500 is already met.  The gap around 1950 represents a target on continued selloff.   

SP500 - Golden Cross
In contrast to recent volatility and Friday's swift sell-off, SP500 will deliver a golden cross between its MA50 and MA200 on Monday. While MA50 has been rising, MA200 has been making lower highs since its August peak. Furthermore, Friday's plunge resulted a solid close below both moving averages.

On balance, the moderate underlying technical strength hinted by the golden cross is likely consistent with our interpretation of a wave (E)-down of wave [4]-down after the first rate hike (Chart 1 blue). The top alternative scenarios are also shown in Chart 1.  Please also see Wave E-down (12/11/15) for additional details.


Transports - Wave [4] and/or a meaningful rebound
Price actions in the Dow Transports also appear to support the interpretation that wave [4]-down with respect to the 2009 bottom is concluding.  From its 2014 peak, the Dow Transports has now retraced a Fib-0.382 of its wave [3]-up, as well as approached potential support implied by its wave [1]-[3] channel (Chart 2).  Chart 3 presents tracking counts on the pullback, which suggest at least a meaningful rebound.

SP500 - Minimum Requirement Met and/or Gap Fill
Chart 4-blue presents  our tracking of wave (C)-down, (D)-up and (E)-down of this potential wave [4]-down triangle.

The minimum requirement for wave (E)-down has been met after Friday's plunge.  It would be the case if wave B-up is a running flat (i.e. the middle blue B in Chart 4).  Note that Friday's low/close is now lower than the wave A low.

If wave (E)-down continues to subdivide, the unfilled gap around 1950 would be an reasonable target.