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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.

Monday's note cited three conditions that would allow us to grow confident on the larger degree (multi-week/month) bearish analysis we made last week: (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.

Yesterday's AM low in all three markets completed the first of these three important conditions for the bear call. On short term charts (13 -21 minutes) one can see a clear "5" wave move down from last week's peaks, with some short term divergences (momentum, breadth) that are typical at 5th wave lows.

The bounce from yesterday's lows so far has a "corrective" look but we should allow for a 1-2 session bounce back to important Fibonacci resistance to fulfill the second condition that is necessary for the bearish interpretation to become even more confident: a failure at upper Fibonacci resistance.

Specifically, those important Fibonacci resistances, the 38.2%-61.8% retrace levels, are for the SPX, NDX, and INDU respectively: 1125-1132, 1440-1453, and 10120- 10173. Many of the countertrend bounces that these markets have experienced since the Q1:04 peaks have had a tendency to retrace even more than 61.8% of the preceding impulse wave.

In particular the DOW, has retraced to the next important Fibonacci retracements level, the 78.6% level (.786 is the square root of 0.618). So we should allow for the indices to perhaps travel even to SPX 1136, NDX 1462, and 10216 before the next, more damaging bearish impulsive wave starts that could carry prices toward the August lows and in time well below those levels.

Only a move above last week's peaks at SPX 1142, NDX 1475, and INDU 10270 would negate the current technical setup we see forming. Stay tuned; this week is turning out to be very important from a technical perspective and may provide the remaining clues to help us make the analysis that the bear market that started in 2000 is back with a vengeance.

No positions in stocks mentioned.

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