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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 saw little net progress in any of the indices: volume, breadth, and ticks did not convey any additional technical information that would help us clear up the short term analysis. The price pattern was not able to help us determine if a correction of at least the bounce from the 10/25 lows is near or will be postponed for another few days. In either case, all the long term concerns we have for the long side here (record sentiment, overbought extremes, intramarket divergences, and a complete or nearly complete wave pattern off the 10/25 lows) remain so chasing stocks at this juncture for another 1-2% upside is especially unattractive.

You will recall that the original target for the SPX based on the analysis laid out in the 11/5/04 note was 1195-1205 between November 12th and November 18th. The current high tick for the SPX and INDU took place on the 17th but failed to get into the ideal Fibonacci target range of 1195-1205. It is entirely possible that the SPX makes its way into that range in the next few trading sessions if a 4th wave triangle formation is taking shape from the peaks on the 17th. Such a triangle (recall they suggest a terminating pattern) would project right into the heart of that range, with a target surrounding SPX 1197 +/- before a larger multi-week correction could be expected to take the SPX down to the 1150 +/- level at least.

So if the market has one more wave to trace out (a terminating 5th wave to levels slightly above current prices), that thrust should still be expected to end the advance off the lows set on 10/25 in each of the indices. Only once we see this peak and/or we see a clean "5" wave impulsive move down can we determine a good setup that would give us the necessary short term confidence on the potential longer term trend. For now, we're in no man's land: prices have not impulsively broken down yet and it is possible that they "need" one more thrust higher to end the bounce pattern off the 10/25 lows. As such, standing aside until we get a clearer picture of the short term trend could be the best course of action.

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