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.
Yesterday gapped down at the open but put in a strong rally back to important Fibonacci resistance in all three markets. Though ticks were strong yesterday, breadth was anemic at best and volume was mixed (low on the NDX, slightly increased on the NYSE). Net/net, the bounce though strong, can be interpreted as a nearly complete ABC corrective zigzag from the lows registered in the AM. The most important piece of information yesterday however was the clear "5" waves down that all three markets registered from the peaks set on December 3rd.
What this suggests is that the probability that a peak of some degree was set on the 3rd. The key to maintaining this view will be if prices do not exceed the December 3rd peaks and ideally start to fall pretty much from near current levels for all three markets. If they do we can reasonably assume that the next impulsive leg down toward lower cited Fibonacci supports (SPX 1150-1160, INDU 10250-10350, and NDX 1530-1550) appears underway.
Again, as we have stated repeatedly, the form of the decline is the most important part of the analysis. If it maintains this "5 wave down, 3 wave up" structure, then we can continue to assume that the December 3rd peaks were potentially very important peaks for the bearish call on the market. The key to maintaining this 5 wave down 3 wave up structure today is that prices do not exceed the 12/3 peaks. Should prices fall from here, that would be another good additional data point supporting the emerging bearish analysis.
Given the proximity of the 12/3 peaks we think today represents a good risk/reward scenario: both the aggressive and the conservative interpretation suggest weakness for the indices at the open and on any slight bounce with stops very tight at the 12/3 peaks (not advice). As we stated in our last note, the really interesting technical action is taking place now that could have ramifications for the price action throughout 2005 so stay tuned and glued to your screens. This is an important time in the markets.
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