Advanced Technical Analysis
Where's the love, Scotto?
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.
Friday's bounce, though it pushed past the peaks registered on Feb 8th, carried weaker breadth, weaker volume, far weaker momentum, and diverged against volatility indices. The only real technical strength of the move was the absolute points and the ticks registered during the move, which were the highest seen since Dec 9th, 2004. We had expressed confidence that the decline on the 8th could produce a move to 1185-88 for the SPX, this latest move higher could very well be only a 5th wave off the lows registered on the 24th. If so, then our target of SPX 1185-1188 in the next handful of sessions is still quite valid.
That said, Friday's move up does introduce a few probable scenarios into the mix for the next few days. Before we go into them we want to make one thing expressly clear: we are expecting a major peak to be registered soon in all indices and a major bear market decline to begin very soon. On this conclusion we have high confidence. Just 'how' the short term plays out - whether the market peaks this week below or above SPX 1217 or if it produces a few more down-up sequences over the next 3 weeks does not change this assessment.
That said we have three different scenarios that we are tracking for the SPX (and by proxy the INDU). (1) That one more slight new high this AM produces a full "5" minor waves off the lows form the 24th (producing wave i) and then declines to SPX 1181-1191 over the next 5-8 sessions (producing wave ii) before bouncing from that Fibonacci support and moving towards our higher target of 1233/35 (producing waves iii, iv, and v) into March where a major degree peak could form. (2) That the move off the Jan 24th lows is more 'mature' from a wave count than it looks and that prices are already within a wave iii off the 24th lows, implying a steady progression toward the 1233/35 area over the next 1-2 weeks where a major degree peak could form. Or (3) That the move off the lows on the 24th is in fact tracing out what could be a truncated 5th wave of an ending diagonal triangle that started in August. Such a move is expected to NOT register new peaks above SPX 1217 and should trace out a "3" wave move off the lows from the 24th. Under this interpretation, one more slight new high above Friday's prices could complete the entire advance off the lows from the 24th, the lows from August 13th, and the lows from March 2003, ushering in a major bear market move for the remainder of 2005.
Please note that under all three of these interpretations, the end game is the same: we expect 2005 to be a very bad year for equities based on the longer term technical indicators we follow. The long term signals being generated right now will not change materially while prices remain in this 'area'. The question becomes simply how prices will trace out their final sub-divisions while buyers exhaust themselves and the mood on Wall Street (and in the wider economy) becomes bearish for the first time in more than 2 years. The risk / reward dynamic favors waiting for one of the above 3 scenarios to play out and for the short term to become clear.
Only the most aggressive interpretation calls for an upside scalp here for a move to new peaks in the SPX 1233/35 area (not advice). And since we cannot be clear on where we are in the short term (among the 3 options we just mentioned), a good risk/reward for such scenario has not yet presented itself. Only a move down to 1181-1191 in a 3 wave corrective manner over the next week may introduce such a potential move to higher SPX targets. We'll simply have to see if such a trade manifests.
The short term for the NDX has changed little: the entire movement off the lows from the 24th remains both muted and very much corrective (overlapped). The only short term question is whether prices move to the next Fibonacci target area in the 1548 zone (+/-10 pts). Recall the open gap (from the daily cash chart) back on January 19th at 1545; it remains a potential magnet. The most important technical aspect of prices however remains the pattern which looks very much corrective and thus against the larger downtrend. This NDX pattern tells us that once the SPX and INDU succumb to a peak and an exhaustion of buyers, the NDX should lead to the downside.
n on this website solely reflects the analysis of or opinion about the perf=
ormance of securities and financial markets by the writers whose articles a=
ppear on the site. The views expressed by the writers are not necessarily t=
he views of Minyanville Media, Inc. or members of its management. Nothing c=
ontained on the website is intended to constitute a recommendation or advic=
e addressed to an individual investor or category of investors to purchase,=
sell or hold any security, or to take any action with respect to the prosp=
ective movement of the securities markets or to solicit the purchase or sal=
e of any security. Any investment decisions must be made by the reader eith=
er individually or in consultation with his or her investment professional.=
Minyanville writers and staff may trade or hold positions in securities th=
at are discussed in articles appearing on the website. Writers of articles =
are required to disclose whether they have a position in any stock or fund =
discussed in an article, but are not permitted to disclose the size or dire=
ction of the position. Nothing on this website is intended to solicit busin=
ess of any kind for a writer's business or fund. Minyanville management=
and staff as well as contributing writers will not respond to emails or ot=
her communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.<= /p>
Daily Recap Newsletter