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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.

Prices on Monday and Tuesday exceeded the peaks from 12/3, electing our stops and suggesting that the specific short term Elliott wave pattern we had been following was incorrect. Despite this, for now all of the non-Elliott wave technical conditions that suggested we are near some sort of peak are still present: DeMark indicators, divergences, sentiment, and larger scale Fibonacci projections.

The 'best' short term count now under consideration is that the lows on December 9th ended an internal 4th wave correction of the entire bounce from the October 25th lows. The new peaks that have been registered afterward are looking very much like a 5th wave (for the divergences and DeMark indicator reasons we cited above). Breadth remains diverged, ticks are not confirming, and hourly momentum is clearly not supporting these higher prices.

Last week we noted the daily DeMark trend exhaustion indicator ("13") that registered for the SPX futures and the NDX cash. Well, the last two days have seen the INDU register the same trend exhaustion signal, while the NDX (cash and futures) registered another "13" yesterday while the SPX cash ended yesterday at a "12", with today's price action potentially completing the cash index as well. The last time all of these indices, SPX cash and futures, NDX cash and futures, and INDU cash all registered "13" trend exhaustion signals within the same few weeks was the first three weeks of January of 2003. And just for perspective: relative to the important trend turns at the October 2002 lows, the November 2002 peaks, and the March 2003 lows, not all the cash and futures markets gave signals at those times, just many of the above markets. For the last two years then, there has only been one other time where these signals were given contemporaneously: January 2003 and now. And given that the sentiment picture now is decidedly more bullish, you can see why we have been reticent to embrace the long side here. But we must also remain patient for the short side to present us with a good risk/reward setup.

In the very short term, since new peaks were registered in all three indices yesterday, all of the minimum requirements for a correction of at least the October 25th low to present peak have been met. Looking at the short term pattern, it would seem that one more down-up sequence could complete a small degree "5" wave move up from the lows registered on 12/9, and then potentially lead to the important peak that has eluded us for the last several weeks. For now then we will remain patient until we see either a "5" wave move down on shorter term charts or we see lower Fibonacci support (SPX 1185, INDU 10,500, and NDX1600) break down.

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