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S&P500: Dead Cat Bounce

January 19, 2016

Monthly Time Frame:

  • The 10 mma has a negative slope
  • In addition we know have a lower high and a lower low

We should not rule out that S&P500 has begun a corrective phase that could open the door to a 0.382 retracement of the advance from the 2009 low which would coincide with a test of the Double Top break out (2000 and 2007 highs), I am talking about the range 1574-1553.

Weekly time frame:

  • Friday's intraday drop below the August low has negated the Triangle scenario
  • Going forward the Head and Shoulder could become the prevailing pattern. The measured target is located at 1611
  • On Friday the August low was temporarily breached but held by eod
  • Below the August low the next support is located at the October 2014 low at 1820. Then below we have the trend line from the 2009 low

  • The decline from the May high is not impulsive (It brings to agreement of a corrective phase)
  • So far we have a Zig Zag in progress with Fibonacci extension targets for the wave (C) in the range 1776 - 1683
  • A Zig Zag can establish the end of a correction or it can morph into a Double Zig Zag / Triple Zig Zag

Daily time frame:

  • The wave (C) is unfolding an impulsive decline
  • We should be close to the bottom of the wave (3)
  • Hence I expect a brief turnaround (Dead cat bounce). A wave (4) rebound with a potential target in the range 1950-1972
  • Once the wave (4) is in place one more down leg will conclude the Zig Zag from the May high.
  • We will have to reassess the pattern as a bottom or a large snap back rally will follow.

Reasons to expect an oversold bounce:

  • Equity put/call Ratio has reached the upper Bollinger Band (Contrarian indicator)

  • The McClellan Oscillator is oversold and it is displaying a positive divergence


With gold stolen by Conquistador Francisco Pizarro from the Inca Empire in 1532, Spain financed its conquest of Europe.
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