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Checkpoint

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Still too many bulls!!!

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S&P 500 (SPX)

The current SPX Elliott wave count, in conjunction with our Demark and momentum indicators, suggests that the five-wave advance from the late October 24th low of 1018 could be complete, suggesting an "ABC" corrective move down to the 1109-1115 area before a trade-able bounce could be expected. So far, this interpretation remains the highest probability, as momentum measures were not confirming the recent swing high in the SPX and that high was not confirmed by any other major index. Confidence in this scenario will increase with trade that posts a slight new low this AM (below yesterday's 1146.97 low) then a shallow, overlapping bounce that stays below 1151 and then another new low for this move around 1134 +/-. Such a move would complete a 5 wave impulsive move down that would suggest the start of the correction of the entire October 24th low to last Friday's swing high. That correction is expected to take the SPX to the 1109-1115 support zone (targets derived from Fibonacci projections).

The slightly more bullish alternative Elliott wave count calls for one more slight (3-8 points) new high above last Friday's swing high at 1163 and then a move down toward our 1109-1115 targets. Key to this more bullish scenario playing out will be an impulsive move up that takes us through 1155. Above 1155 suggests this more bullish scenario is playing out. Confidence in this interpretation remains low given the impulsiveness of the move down yesterday.

Overall, the SPX, powered by the financials (e.g. the BKX) remains the strongest of all the major indices. However, the overall technical health of the market remains decidedly mixed: the Friday high in the SPX was not confirmed by either the Dow or the NDX, while the NDX itself (see below) remains quite weak on an internal basis (volume, momentum, etc.). In addition, volume on the NYSE remains quite anemic on advances suggesting limited momentum. Readers are almost certainly aware of the record bullishness present in sentiment measures; levels that eclipse even those of March 2000. This bullish sentiment remains a long term concern for us.

Our longer term Demark, Elliott wave, and momentum indicators are suggesting that some form of important intermediate term top is near that needs one or perhaps two more swing highs to complete the larger move up from the March low, a process that should take several weeks (possibly months) range-bound trading between slight new lows on each swing down and slight new highs on each swing higher. Whether the top(s) that registers in the next several weeks (or longer) is of intermediate term importance remains to be seen.

Once we can identify a completed Elliott wave of larger degree (like that of the March 2003 low), we will highlight it here. For now, the best trading strategy is to attempt to play these swing lows and swing highs within the trading account. And as always, this is offered in an educational vein and is not intended as advice.

Nasdaq 100 (NDX)

Yesterday's price action in the NDX, a new low for the year on accelerating momentum as priced drifted lower, suggests that the call for a move to the 1400-1425 area is the most likely scenario playing out from an Elliott and Demark standpoint.

The Elliott wave and Fibonacci subdivisions of the decline from the January 20th high (1559) to the February 4th 1461 low counts as the first impulsive wave down, with the overlapping, "ABC" advance off that low counting as consolidative price action against trend. Wave 2 up ended by our count on February 19th at 1524 and we are now in a third wave down that should approach at least the 1400 -1425 area, if not lower.

The bullish alternative Elliott wave count suggests that the decline from the 1/20/04 high at 1559 to a low that forms in the 1400-1426 region is possibly a corrective ABC decline or larger degree that will put in a solid low in the 1400-1425 area before moving decidedly higher. At this point, the confidence level is low in that scenario.

In either case, our indicators are suggesting a visit to the 1400-1425 area in the next few weeks. As prices evolve, we will be better able to target a more narrow price range. For now both the bullish and bearish Elliott wave counts call for more downward price action toward our target zone. Important resistance to keep this scenario the most probable one is 1463-1470. Prices should not move impulsively through that area if our call for 1400-1425 is the correct one.

Overall, whether or not the January 20th high in the NDX was a long term top or was the wave 3 top of the move off the October 2002 lows remains to be seen, though the Demark and Elliott wave indicators suggest it could be a top of some importance. Whether or not that January 20th top is important depends on price action as we approach our 1400-1425 target area. Our bearish call on the NDX remains: we would be cautious on any significant bounce that develops for a move to 1400-1425. And again, this analsyis is intended to demonstrate how price action can be interpreted and is not intended as advice.
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