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In an effort to keep you all updated on the technical course that we have been watching over the last month or so, our last update before Thanksgiving suggested that one of two courses would be probable given the conclusions that our three studies (Demark, Fibonacci, and Elliott work) were then coming to: one was immediately bearish, the "other (more short term bullish) conclusion that can be reached is that the current decline stops at or above the support levels cited above (again 1040 to 1045 SPX and 1385 to 1395 NDX) and then thrusts one more time to register slight new highs above 1063 SPX and 1450 NDX before falling away from those levels toward our lower targets."

Clearly those support levels held (that morning in fact) and we have indeed gone on to see new highs in the SPX though not in either the NDX or the DOW (a possible negative divergence should it hold). As of yesterday's highs, many Demark, Fibonacci and Elliott conditions have been met to suggest yesterday's highs were in fact the top, but a more "perfect" top would be made (on a Fibonacci basis) with a tick to 1075 on the SPX, around 1470 on the NDX, and something like 9920 on the DOW. Again, all three targets aren't necessary to complete the picture since sufficient conditions exist to suggest the top is in, but they would represent a more perfect scenario.

At this stage, given the ups and downs that classic distributive tops make, a prudent trader would at least await confirmation that yesterday's top was an important one. The next three days will be critical toward this end: based on the three studies we are watching, a close below 1058 SPX would at least warn that a top may be in place and then we would need to see how any decline unfolded with respect to the three studies we are watching to get more comfort about whether yesterday's highs were important.

What gives me cause for concern here (and prevents me from selling strength) is that we haven't yet seen some divergences between the price action and other measures of momentum and breadth. In addition, the put/call ratio (moving average and daily) has not been sufficiently bearish (read: very low) enough, though admittedly it may not become so and it certainly isn't considered bullish at these levels. And with the November employment report coming up on Friday, you can understand why it remains unclear whether yesterday's price high tick was an important one or not.

As always, these studies help us identify probabilities and not certainties, so other more bullish scenarios are possible; prices would need to move up substantially on great volume and breadth for several days before suggesting a move into the 1100s (SPX basis) was in order. Until then, we'll have to trade what we see and not anticipate the anticipator. Of course, we lay these scenarios out for education purposes only; we're not in the advice business, so add it to the palette you are already painting from.
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