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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.

Friday's advance, and the underlying technical strength it displayed (breadth, volume, momentum) nullifies the immediately bearish interpretation we had last week, instead pointing toward new annual peaks for the blue chip indices (SPX and INDU) while the NDX remains relatively weaker. Recall that we had been looking for "5" waves to complete off the lows from January 24th; the 3 wave decline last week after a 5 wave advance from the 24th lows to last week's peaks suggests that the larger move off the lows of the 24th is not yet complete and is subdividing higher.

Techical targets for the SPX are in the 1227/34 area and again in the 1250/60 area over the next one to three weeks. The INDU's pattern is open to more potential interpretations than is the SPX so we will continue to peg off the SPX to determine the most likely path for the blue chip indices. The NDX for its part remains highly lagging, giving weight to the longer term bearish interpretation that calls for an end to the move off the Aug 2004 lows to complete in this 'area' for all the indices. The NDX is likely to move to new peaks above the recent 1560 peak in what looks like a nice flat corrective move off the lows from Jan 24th.

The fact that the NDX looks so corrective while the blue chips look impulsive to new annual peaks is a characteristic of a divergent and ultimately unhealthy market longer term. That said, the very short term trend remains up for the indices to new annual peaks for the SPX and INDU while the NDX lags. A complete 5 waves up from last week's lows should soon end giving rise to a slight pullback that, based on the very aggressive interpretation, would present an upside opportunity with tight risk management (not advice).

For now we will continue to hold this short term bullish view while the longer term bearish case continues to build and come to some sort of fruition in the next several weeks. For longer term bears, patience is going to be key here: we still think that the advance from both the March 2003 and August 2004 lows is nearing completion (and will thus lead to the largest decline in 2 years). But until another setup for the downside presents itself, it will not pay to fight the short term trend, which remains up (not advice).

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No positions in stocks mentioned.

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