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Advanced Technical Analysis

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SPX and INDU prices reached right to the upper limit of the Fibonacci resistances we have been watching: the 78.6% retracement level at SPX 1189.4 and INDU 10573. The NDX's equivalent level, at NDX 1554, is much higher, illustrating that the NDX has - so far - failed to really confirm this advance by the blue chips. We can cite the presence of divergences (breadth, ticks, certainly momentum), some hourly DeMark trend exhaustion indicators in certain indices, and the ability to count a completed "3" wave pattern off the lows registered on January 24th as evidence that the bearish case is still very much alive and that the expectation for a decline soon is warranted. But alas, price is, in the final analysis, all that matters, and a move above the peaks from January 19th for the NDX, SPX, and INDU would cause us to abandon the highly bearish count we currently have; that of a third of a third wave down.

This does not mean that there are not alternate counts that are long term bearish, but any move above the peaks of the 19th eliminates the present very bearish count. A few alternate pattern interpretations present themselves if the SPX and INDU proceed above their 19th peaks, including one that points to SPX 1201-1209 before expecting a major thrust to new lows and one that points eventually to 1250 / 1260 in new peaks before a much larger failure and potential decline presents itself. We will discuss those should price action warrant. For now then, the fact that the NDX and SOX are so clearly lagging in terms of their bounce, the divergences in momentum, breadth, and ticks that are present, the ability to count a completed 5 wave move off the lows from the 28th, and that the SPX and INDU have not yet moved above the stops from January 19th (SPX 1196, INDU 10629, and NDX 1574) keeps the bearish interpretation intact but is stretching its viability.

The bearish interpretation should maintain the stops we cited previously: those peaks from January 19th. The analysis suggests patience (for now) in adding to the bearish view until we see a potential decline manifest: coming below SPX 1171, INDU 10459, and NDX 1500 would be strong evidence that the bearish case is still operative and that lower levels (SPX 1140 at least) are in this market's future (not advice). Going long isn't supported by our work at these levels given the clear lack of 5 wave impulsiveness (so far) off the lows from the 24th and the divergences that are present.

For now then, above SPX 1196 eliminates the immediately very bearish scenario (and may only delay an eventual bearish resolution) while coming below SPX 1171 strongly reinvigorates it.

No positions in stocks mentioned.

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