Advanced Technical Analysis
Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.
Thursday's price action was unremarkable in almost every way: volume was (again) anemic, while prices remain tightly range bound for the major indices. Breadth, ticks, and volatility provided little technical insight. Friday's price action however was interesting, at least from a pattern perspective, as prices in all three indices saw a sharp decline backed by negative momentum at around 2:40 ET.
As we have written (seemingly ceaselessly) over the last two weeks, we have been waiting for some sort of impulsive looking decline to begin in order to even entertain the idea that some sort of meaningful peak might be in place. Could Friday's decline be the start of that first impulsive decline in a series of other, larger declines? Possibly; all the pieces are in place for it, just as they have been for the last two weeks. But we'll need more price action over the next several days to confirm that some sort of potential peak is in place before becoming confident in that assessment. Aiding the bear case is the fact that volatility has increased markedly over the last week: up 22% in the last five sessions. That the Russell 2000 index tagged the important 656 level (and was turned down with topping indicators) we noted in our RTY note of a few weeks back too is helpful.
At this point, as our last few notes have stated, only the price pattern will tell us if the accumulated divergences and topping indicators that we have been cataloguing over the last few weeks will resolve themselves into lower prices. For now, patience remains key; if Friday's decline was in fact the start of something meaningful, then there will be plenty of time to position for the downside. We await a "5" wave move down on the hourly chart to become confident in the bearish case.
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