$SPX: Likely Weakness Next Week

FX:SPX500   S&P 500 Index
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After tagging 2174 in overnight trading early Wednesday, the market traded in 9 point range for the last 36 hours of the week with more red than green.

Momentum has stalled just beneath the likely reversal zone published last Sunday and we have fallen below trend. The closing Doji-like candle on Friday suggests indecision.

Some believe we are working on wave C, while other believe we are working on a wave 5 or a minor iii             but among the three EW experts I follow none have declared an intermediate top. They pin events after the fact.

But as a trader, I am inclined to believe we have put in an intermediate top and are likely to see moderate weakness through much of next week after putting in a double top at 2169 ( real number) during an OPEX week which, as of late, tend to be marked by major strength. I would not rule out a run at 2177 followed by weakness.

This view of likely weakness is supported by the McClellan oscillator for the S&P 500             which is starting to roll over after a number measures of sentiment reaching extremes.

Any retracement is likely to be limited and based gains following 2073, not the bottom at 1990. A 23.6% retracement would take us down to around 1950 where there is ample support. Yellow lines mark other areas of potential interest.

Should the pullback be deeper than expected, it’s highly unlikely to fall below 2131…a major EW pivot and area of support.

Scores of companies will be reporting earnings next week with some of the larger names including BAC             , V, JNJ             , EBAY             , GM             and YHOO             . Analysts are highly focused upon earnings outlook as it is widely believed there will be an earnings revival in the second half of the year after five consecutive quarters of earnings declines.

Depending upon the results, large swings in either direction are possible. Volatility should increase, supporting anticipated declines.

Lastly, geo             political risk has increased with the attempted coup in Turkey but with its suppression this risk has likely been reduced.
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