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Advanced Technical Analysis

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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 and Monday's price action continues to reinforce the larger analysis that the peaks registered two weeks ago were the end of very important corrective bounces. The INDU and SPX have now met our three conditions to make our confidence high that the bear trend from 2000 has reasserted itself; the NDX has so far only met 2 of those important conditions, but we believe the NDX is on the brink of starting its own impulsive leg down toward the August lows.

The interesting thing about the Elliott wave count over the last week has been that the SPX and INDU have been leaders on the way down, which is to say that those two indices are in a more "advanced" stage of their count. Specifically, though there are a few ways to acceptably "count" the move down from the early October peaks, the best way to our eye looks like a series of 1-2 waves that point still lower before we could expect a bounce of any sort to materialize.

Breadth, ticks and short term momentum were not confirming the bounces yesterday in any of the indices. When combined with the fact that the bounces look very corrective so far, we think the bulk of the SPX and INDU's corrective bounce is complete. If not, we could see a move to SPX 1120 and INDU 10128 before these two indices start impulsively lower based on the analysis.

The NDX for its part has held in there and as of yesterday's close looks like it has all but completed a very nice ABC corrective three wave rebound from its 10/12 lows that has carried to both trendline, Fibonacci, and equality (wave C = wave A) resistances. So despite the fact that the NDX has outperformed the SPX and INDU specifically for the last week (and more generally from the 8/13 lows), we believe the NDX is about to get in gear on the downside and may play catch up to the SPX and INDU in their bear trend (not advice).

To this end, we believe the NDX presents the best risk/reward view at this point over the SPX or INDU. Weakness looks likely in the NDX (with a move thru recent peaks at 1475 negating this near term bearish analysis and forcing us to stand aside) with the expectation that the NDX is likely set to decline meaningfully over the next several weeks toward the August lows. If our Elliott wave counts are correct, and the Demark and momentum/internal interpretations are sound, each index could start the next leg of its decline soon, with the NDX falling hardest and the SPX and INDU following close behind.

It is important that the three indices continue to provide evidence that the trend from the October peaks is still bearish: so far they have done so nicely. But we'll want to be attuned to any action that does not deviate from this "lower and now" analysis. So far so good, but we'll remain on our toes.

No positions in stocks mentioned.

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