Advanced Technical Analysis - NDX Intraday Flash
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.
With the bounce today in the NDX above the 78.6% retracements level (above 1467) of the recent decline, we thought it prudent to take another look at the NDX's technicals by taking a step back to look at the hourly chart once again. In an intraday note last week (dated 10/22) we stated the following about the NDX at that time: In short, the double zigzag corrective bounce from the 8/13 lows counts well, which is to say that it has "nice: internal Fibonacci relationships at two important price levels: 1478, and 1515. At 1478, the first zigzag is 1.37 times the second zigzag in terms of price, this is remarkably close to 1.382, one of the important derivatives of phi (0.618). Further, at 1478, within the second zigzag up from the 9/28 lows, the C wave = 0.63 the length of the A wave (again, close enough to an important 0.618 phi relationship). 1515 holds some potentially important relationships as well. At 1515, the second zigzag would be equal to the first in terms of gain: 139 points. But 1515 would be a mere 8 points away from the June NDX peaks; such a "deep" retracement of the impulsive move down from the June peaks would be a rare occurrence and would stretch the bearish Elliott wave interpretation of the peaks in Q1:04 being the bear market bounce peaks from the October 2002 lows. Nevertheless, give all those above considerations: 1478 and 1515 remain very very important price levels that "need" to hold the NDX advance in order to keep the bearish intermediate term trend alive for the NDX.
Today's bounce given its parabolic nature and deep retracements, suggests that our 1479 levels will be triggered and that new highs above the recent 1478.46 peak will be seen. The question is, as it was when we addressed it in our 10/22 intraday FLASH note, are these new highs suggestive of a bullish new phase or the end of the trend from the 8/13 lows? Once again, the data points squarely to the more bearish interpretation here.
Specifically, NDX breadth has been diverging since 10/12, hourly momentum has been diverging from 10/4, and volatility is negatively diverging since 10/1 and again on 10/19. Couple these bearish divergences with the hourly Demarks which are ready to register in the next several hours of NDX trading, and one comes away with an intermediate term picture of the NDX having weak underlying technicals.
You will recall that our top Elliott wave view was that of a double zigzag off the 8/13 lows, with the second abc zigzag taking place from the lows on 9/28. In other words, to consider this second zigzag bounce complete, we'd need to see "3" waves up (an A advance, a B correction and a C advance again) from those 9/28 lows. The A wave of this second zigzag is easy to identify: from 9/28 to 10/7. The B wave too is easily identified: 10/7 to 10/12. The C wave has been more difficult to pin down in terms of its peak (as is often the case for corrective waves generally and C waves within zigzags specifically).
Ideally from the 10/12 NDX lows we'd want to have the following conditions be met: (1) a new peak above the A wave peak of 1474.70, (2) hourly divergences in momentum, breadth, ticks, and volatility, (3) a "5" wave structure within the C wave itself, (4) hourly Demark trend exhaustion signals, (5) operative channel trendlines, and (6) important Fibonacci resistances near the peak. At the 10/21 peaks, all but the Demark trend exhaustion indicators were present, so we thought it high probability that a turn down was imminent. But today's rally to new peaks suggests that this C wave off the 10/12 lows is in fact "extending", with the 5th wave within C taking place from yesterday's 1424 lows to the current peaks. As importantly, today hourly Demark trend exhaustion indicators will register along with the divergences we listed above. We would also note an intramarket divergence insofar as the NDX is making new swing highs while the Nasdaq Composite index is not.
All of these technical factors in toto combine to suggest at least two things: (1) the long side appears extremely risky here, in my opinion, given these non confirmations and (2) an important peak could be registering as we write this note (not advice). Note that the entire month of October has been spent in the range between 1475 and 1425, with the NDX making no net progress during that time. Given the divergences present, a break out above that trading range is a smaller probability than a break down from it. That said, only an impulsive move down soon that takes out 1444 and then 1420 will provide helpful technical evidence of a potentially sizable trend change in the NDX, but all the necessary technical conditions are in place for that to happen. We will stand aside for now. But while we remain on the sidelines, it is important to keep the longer term bearish picture on top of mind so that we can take action when the next opportunity presents itself.
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