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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.

At the new lows today in all the major indices, we now have a minor degree "5" wave move down from Monday's peaks. In our full note Wednesday, we suggested that we'd want to see another up-down sequence for all the indices; Wednesday's and Thursday's action has provided just that outcome. As importantly, at yesterday's new lows, ticks, breadth, momentum, and volatility were positively diverging (short term bullish) against those new low prices, suggesting that some sort of oversold bounce is approaching. The SOX and NDX registered hourly DeMark trend exhaustion signals yesterday also.

The combination of these factors suggests the potential for a mean reverting bounce for 2-3 sessions and back to some Fibonacci resistance level is high. But we want to be perfectly clear on this point: the expected 2-3 session bounce should not exceed last Monday's peaks and should exhibit a corrective pattern as it plays out: the bounce will be counter-trend and thus difficult and risky to attempt to scalp. The most important implication of the "5 down" from Monday's highs is that the new trend is now decidedly bearish; it is this bearish trend then that traders should seek to focus on.

And that bearish set up looks like it should take us into next week to materialize. It is possible that we see some more downside action today but given the potentially completed impulse wave down from Monday's peaks, the probability of it being substantial is low.

Therefore, we will look for a bounce to occur in the market soon that takes prices back to Fibonacci resistance levels. Specifically those Fibonacci resistance levels that we would look to position for weakness are: INDU 10680-10775, SPX 1195-1205, NDX 1585-1605, SOX 415-425, and RTY 630-640 into early next week.

If the move into those resistances is 3 waves and overlapped (hallmarks of corrective moves), that will strongly suggest that the bounce is a mean-reverting bounce that will be entirely retraced in time. Some very important price action is taking place in the markets here, as important as at least the action that took place around the August 13th lows and the January 2004 peaks before that. Stay it's getting interesting.

No positions in stocks mentioned.

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