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Advanced Technical Analysis

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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.

The resolution of the short term bearish divergences we noted on Wednesday took place over the last two sessions: dropping the NDX, RTY, SOX, and SPX in an impulsive (5 wave) fashion from the peaks registered on Tuesday. Only the INDU was able to make a new peak yesterday but it did so against some very pronounced bearish divergences in breadth and momentum as well as with some hourly DeMark trend exhaustion indicators right into yesterday's close. So how does all of the action of the last two sessions alter our previous call?

First, here is what we said in Wednesday's note: "The SPX has two targets: either it turns down from the 1203-1207 area or it reaches to its next Fibonacci projection at 1233/35 in a new (5th wave) peak over the next several weeks before we can expect a larger degree decline. One can make a good case that "5" waves up on the hourly chart from the lows on the 24th (and/or 28th) are complete (along with hourly DeMarks and a short term momentum divergence). If so, a pullback to the 1179 to 1188 area is expected under the bullish interpretation. The 1178 area will fail to hold prices if the more bearish interpretation is operative. "How" the SPX pulls back from any near term peak will be very important technical information: a deep impulsive pullback that takes out 1178 and then 1171 makes the more bearish interpretation operative. A shallow corrective looking pullback to the 1184/88 area will setup a potential bounce for perhaps the last 40 to 50 SPX points. Until then neither the long side nor short side are presenting good risk/reward scenarios here."

Well, clearly we saw the retreat from the 1203-1207 'area' and the short term patterns suggest the SPX should decline further to at least the 1185/86 area over the next few sessions (the equivalent area in the INDU is 10566). As we noted above, if this SPX 1185 area does not hold, and then 1178 and 1171 fail to support the market as well, the more bearish interpretation of prices will be operative that calls for a hard decline to much lower levels for the next 1-2 months. If 1185/86 holds prices and produces a bounce that eclipses the 1205 area again, we will be forced to conclude that new annual peaks are in store for the SPX, with a possible 1233/35 target sometime in March.

The NDX remains in its own (more bearish) technical world; the breakdown below the 1502 level yesterday was very bearish and makes a very low probability of the call for another corrective move to the 1456 area. It remains a possibility we should not dismiss entirely however. The short term for the NDX suggests a potential bounce back to the Fibonacci area of 1515-1525. Should such a bounce occur, it would present a solid setup for lower prices with trade moving thru NDX 1535 forcing us to stand aside. If we are correct, the NDX should start a serious decline toward at least 1428 in the short term with much more bearish potential thereafter (would you believe 1306 in a few months?).

Nothing clear picture on the SPX or INDU: we need to see what happens at SPX 1185 and INDU 10566. We would look for weakness on the NDX on a bounce toward 1515-1525 over the next few sessions (not advice).

No positions in stocks mentioned.

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