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Advanced Technical Analysis



Wednesday's and Thursday's price action in the SPX and INDU either partly or fully fulfilled the corrective looking bounce we had been looking for in Wednesday's AM note. The INDU's and SPX's recent (last two days') peaks largely reached into the cited Fibonacci resistance zones we mentioned in the latest note: SPX 1117-1123 and INDU 10100-10200. The "manner" or pattern in which the SPX and INDU advanced into those important resistance zones was very clearly corrective (overlapping) in nature, suggesting that the entire move up off the 9/28 lows is still a counter-trend move and that the larger trend (intermediate term) likely still remains down. However, we are moving our confidence rating for this call down from "high" to "medium" for the following reason:

Specifically, the Elliott wave pattern in the NDX up from the 8/13 lows to the 9/21 peaks was very clearly a "3" (and thus the dominant intermediate term trend is likely down). But the NDX also declined in "3" waves (a simple A-B-C zigzag) from the 9/21 peaks to the lows set on 9/28 (where the A wave and the C wave are almost exactly equal to boot). What this suggests is that the upward correction off the 8/13 lows is potentially tracing out a more complex double zigzag (ABC-X-ABC) and that new peaks above 1440 could be seen in the next week or so before the larger degree trend (down) reasserts itself. As a result of the different technical conclusions we can come to with respect to the SPX, the INDU and the NDX, we cannot maintain a "high" confidence outlook here. Indeed, it would be hard to imagine a scenario in which the SPX and INDU fell rapidly (as the Elliott wave count we are using would imply) while the NDX is rallying to new highs above 1440 (a 2.5%+ move). We have found that, over the last few years, the time for conviction is when all three markets "align" and the Elliott wave, Demark, and traditional TA indicators are pointed in the same direction - when they do not, we have found it wise to be less so.

So it is today: with the NDX showing signs that it may put in a new peak above 1440 (1467-1476 are potential Fibonacci targets if 1440 is exceeded) while the SPX and INDU remain bearish, we think patience and tight stops are key.

As a result, we maintain our view with respect to the SPX and INDU looking for weakness from SPX 1117-1123 and INDU 10100-10200. A move thru the 9/21 peaks would cause us to reevaluate that view. On the NDX, however, only a move below 1390 today or Monday would cause us to re-embrace the immediately bearish stance on the NDX. Otherwise a minor move lower that finds support in the 1393-1402 area and bounces back up will suggest that new peaks above 1440 could be the next Fibonacci target before the larger bearish trend re-asserts itself.

No positions in stocks mentioned.

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