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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 intraday note focused on two important points: (1) the SPX and INDU technicals remained firmly in a bearish pattern with new annual lows targeted as a result and (2) the NDX technicals, if prices declined impulsively (i.e. in 5 waves) from either the 1478 or 1515 areas, would confirm its bear market trend from the Q1:04 peaks and suggest new annual lows for that index as well. By the end of trading on Friday, the SPX and INDU added yet more evidence to their intermediate term bearish case: each market closed on its low tick, momentum, ticks, and breadth were confirming the price decline, and the INDU made new lows for the year.

The NDX, in declining 2.7% on good volume and confirmed by ticks, breadth, and momentum and doing so in what looks very much like the start of an impulsive move (the decline can be counted as a complete or nearly complete 5 waves), has strongly suggested that the NDX is now "in gear" with the bearish intermediate term trend in the SPX and the INDU. If so, the NDX could start a steep decline lasting into the end of this year or beginning of 2005.

Last week we published a note (dated 10/19) in which we showed you the chart of the Nasdaq Composite divided by the NYSE index. At the time we suggested that the outperformance that the Nasdaq names were experiencing was potentially nearing the end of its trend. Friday's decline in the NDX, at -2.7% was far worse than the INDU (at -1.3%). Though we'll need more of this NDX underperformance to help confirm the larger trend change (NDX underperforming the INDU/SPX complex), Friday's NDX trade may be the first data point in a series that helps us confirm that indeed the NDX could well underperform for the rest of the year. Stay tuned, we'll update that chart as the conditions warrant.

The downtrend in the SPX and INDU remains. It is possible that the next few days sees a corrective bounce of some degree in both the SPX and INDU. If so, it could present another opportunity to position for another impulsive wave down in those indices (not advice). Important resistances at SPX 1126 and INDU 10120 remain levels which should largely contain any bounce that materializes. For the NDX, we stated in Friday's intraday note that we would await a "5" wave move down in the NDX on short term charts to help confirm a trend change. Such an impulsive move down, from either Thursday's 1478 peak or 1515 could suggest further weakness with only a move through this 1479 peak negating the near term bearish view.

If our larger technical analysis on the NDX is correct, the NDX could decline steadily for the remainder of the year and put in new lows beneath the August lows at 1300, with much more bearish potential thereafter (not advice).

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