Voo Doo Update
To recap our earlier discussion on techical elements that affect the stock market : 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 is complete, suggesting an "ABC" corrective move down to the 1109-1115 area before a tradeable bounce can be expected. Trade this week has already developed a 5 wave impulsive move down from the 1163 high, suggesting that wave "A" of the expected ABC down move might be nearing completion.
However, I don't feel comfortable suggesting that the A wave down is complete just yet--our Demark hourly indicators have not yet reached a selling exhaustion point (they could today 3/11/04) nor have we seen a momentum divergence against prices whereby prices post lower lows but MACD does not. Yes, we can "see" 5 waves down from the 1163 high (with an extended fifth wave playing out from yesterday AM's high), but alone that technical indicator doesn't make us confident enough to proclaim the "A" leg down complete. It's possible that we get our Demark indicators and momentum indicators to line up on the bullish side tomorrow or the next day but at present such positive indications remain elusive.
One thing to keep in mind: to the degree that prices do not find support in this 1109-1115 area, we would have to reassess our working Elliott wave count, with lower price projections. Ticks, advance/decline ratio, and volume all confirmed today's weakness, suggesting that it's not over as of yet. We will need to see a few more positive confirmations of a tradeable low before a bounce is "probable." For now, I see no need to alter my view that prices could well test the low end of our target range of 1109-1115.
For its part, the NDX is both more oversold and closer to a "bottom" than is the SPX. We have been targeting the 1400-1425 range for NDX prices and yesterday's low at 1417 was within that region. A slight increase in volume, along with a 3.4:1 decliners/advancers ratio confirmed the weakness, suggesting that the conditions aren't there for a good bounce yet.
Like the SPX, for the NDX we can "see" a completed five waves down from both yesterday's AM high at 1447.50 (within our fourth wave target set out intraday on 3/10/04) as well as a larger degree five waves down from 3/5/04 1494 high. Our hourly DeMarks are close to registering a selling exhaustion point. However, we would like to see more non-confirmations in momentum to suggest that we've seen some sort of important and tradeable bottom in this region. At this point, there is simply not a good risk/reward setup for either a long trade or a short trade based on our indicators.
From a larger degree standpoint, the NDX is at an important juncture. From the top on 1/20/04 to now, there are two ways to "count" the action from an Elliott wave standpoint. The bullish interpretation is that the entire corrective action from the 1/20/04 move is taking the form of a three wave, ABC pullback. Oftentimes, the A leg and the C leg of ABC pullbacks are roughly equal in price. In the NDX's case, the A leg was roughly 100 points (1560 to 1460 from 1/20 to 2/04). From the B wave top at 1524 on 2/19, 100 points down gets us to 1424, making a potential C leg bottom in the 1424 +/- few points area. Well, that's where we are now. If the NDX cannot find support in this area (soon), then the next Fibonacci projection from the A leg would be 1360-1370, or 1.618 times the length of the A leg.
Why is this subsequent projection important? If the NDX projected to that area, then Elliott wave odds of a major top forming at 1560 on 1/20/04 would greatly increase. Why? Because within Elliott waves, the 3rd wave is oftentimes 1.618 times the length of wave 1. So if the NDX does not hold in this area and projects down to the 1360-1370 area, then the odds are that we would have to count the first leg down from the 1560 high as a bearish wave 1 (not wave A), the subsequent up wave as wave 2 (not wave B) and the current action as a Wave 3 (a wave 4 up and then a wave 5 down to 1300 would ensue). This count would imply then, an even larger trend change had occurred at that 1560 high. We'll have to see how prices evolve then, in this important 1400-1425 area.
As always, Minyans, this is not offered as advice. I wanted to walk through the "process" of analytical technical analysis with hopes that it helps Minyans learn how to fish better. Best of luck!
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