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Advanced Technical Analysis - OSX

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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.

We're updating our OSX technical note from early November. At the time we suggested that a good low had been found at 112.33 on 11/9. Though the bounce from that level added 14.1% until November 26th, it did so in what looks very much like a 3 wave form. As regular readers know, "3"s are corrective waves and denote moves against the trend of one larger degree. The Elliott wave count we had been following suggested that the November 9th lows could move impulsively (5 waves) up toward the 140-145 area before turning down. Instead however, the OSX has left a 3 wave move up from the November 9th lows to the November 26th peaks and has now traced out a "5" wave decline (hourly chart) from the November 26th peaks to the lows registered last week on December 8th. Though it is possible to count the entire correction from October 7th to December 8th as a completed irregular flat correction (and thus suggest the OSX is ready to power higher immediately), that is not the most probable interpretation for a number of technical reasons.

Instead, we think it is prudent to view the correction that started from the October 7th peaks as (1) ongoing (and thus prone to lower Fibonacci supports in the 106-109 area) or (2) as perhaps a much more bearish completed ABC corrective bounce off the 2001 lows. This more bearish interpretation is, for now, an outside possibility; only if the 106-109 area gives way would we need to entertain this view in any serious way.

For now then, we think it is prudent to focus on the 114 level for any existing positions; below that points to the 106-109 area and, in the improbable event that the more bearish trend is operative, much lower still based on the analysis (not advice). We can entertain the more immediately bullish scenario if the OSX can get through 126 in the next few sessions. Otherwise, we think the most probable scenario is for this index to fall toward lower support in the 106-109 area. For now we are tentatively holding to our long term forecast for 170-185 area in June 2005 until we see how and where support for the OSX stands. If prices can hold above 114, then the bullish call gains credence. Below 114 and more bearish possibilities will need to be entertained.

No positions in stocks mentioned.

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