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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 and Tuesday's price action in all three indices continued in a choppy, overlapping fashion to new peaks yesterday, further deepening the already clear divergences that we have highlighted for the past several sessions: breadth, momentum, ticks, and volatility were not confirming the new peaks registered yesterday in each of the three indices. When combined with hourly Demark trend exhaustion indicators and a completed Elliott wave off of the lows registered last week, this continues to strongly suggest that the advance off last week's lows is weak and prone to a correction to lower Fibonacci support in the SPX 1110-1121, NDX 1457-1478, and INDU 9870-9970 areas.

As our lengthy note last week suggested (10/29) if these support areas provide significant support to any correction and then impulsively bounce to new swing highs, that would force an intermediate term bullish analysis to new annual highs in each of the three indices. However, if those Fibonacci support areas do not hold, then we can assume that the larger degree trend (multi-week/month) is in fact bearish off the Q1:04 peaks and new annual lows are forthcoming.

As before then, the intermediate term trend - whether bullish or bearish, depends on "how" the divergences in momentum, breadth, ticks, and volatility resolve themselves in a correction. If such a correction, lasting 3-5 sessions, finds support at those Fibonacci supports, that would be bullish. If they fail to hold on that resolution of these divergences, that would be bearish.

The decline off the afternoon peaks yesterday had the potential to be the start of an impulsive decline and thus the start of at least a resolution of the bearish divergences we have witnessed. However, as we write this at 11pm EDT, NDX futures have made new peaks (e-minis) while SPX e-mini futures are close. Whether yesterday's peaks in the cash markets for each index represents a peak from which at least a short term decline will start remains to be seen.

As a result of this short term volatility surrounding the election results, providing a good risk/reward analysis here is difficult. The aggressive approach favors waiting for a small degree 5 wave decline in any of the indices to confirm at least a short term (3-5 session) correction with the bearish case likely playing out from any bounce that develops (not advice). As we stated before, the conservative approach favors awaiting confirmation of the bearish or bullish intermediate term trend by a move above or move below the resistances/supports cited.

It remains as important a point today as it was when we made it in our last note: the long side, given these short term divergences (which are as noticeable as we have seen this year) remains risky. The analysis suggests that for those who are intermediate term bullish, waiting for a correction and/or a bullish divergence to develop in these technical indicators may provide the best risk/reward (not advice).

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