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.
Friday's price action, with the SPX and NDX entering impulsively into the "first" Fibonacci support levels we cited, adds some real clarity to the overall technical picture as we now have definitive price levels and patterns to help confirm or deny the intermediate term bearish trend that we have been following from the August 13th lows.
Specifically, Friday's note cited Fibonacci 'first' support at the SPX 1116-1126, NDX 1413-1437, and INDU 9930-9980 levels. The key determinant of the larger degree bearish interpretation is very straightforward: if prices trace out a full "5" wave move down from last week's peaks in all three indices, that would be strong initial evidence that those peaks were potentially very very important, which is to say peaks that could start the next major leg of the bear market that started in 2000.
So far, the pattern on 13 minute charts looks to be, in the SPX and NDX particularly, a 1-2-3 wave move, with short term momentum confirming the Friday closing lows. Another "up-down" sequence to the price pattern from Friday's close would generate an ideal "5" wave move down and could lead to a 1-2 day bounce back to Fibonacci resistance. Such a "5" wave move would make us more confident that last week's peaks were major bear market corrective peaks.
However, both additional pattern and additional Fibonacci support failure would be needed to continue to confirm that intermediate term (multi-week/month) analysis. On that score, a 3 wave bounce off of a 5th wave low that terminated somewhere in the 38.2-61.8% resistance level (we'll attempt to identify those specific levels if/when we see a completed "5th" wave on Monday or Tuesday) would add considerable strength to the bearish case. Further, a break below important Fibonacci support levels of INDU 9980, SPX 1110, and NDX 1397 would then add perhaps the final piece of technical evidence needed to make the larger degree analysis for new annual lows (and in time new lows beneath the 2003 and 2002 lows) for all three indices.
So net/net, the three things we are looking for this week technically to help us become more confident that last week's peaks were major tops are: (1) a completed "5" wave move down on short term charts from last week's peaks; (2) a 3 wave bounce from such a "5" wave low that fails at Fibonacci resistance; and (3) a subsequent decline beneath INDU 9980, SPX 1110, and NDX 1397.
Stay tuned: this week is going to be very important to helping us understand if the bear market that started in 2000 is back with a vengeance.
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