Applied Complexity 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.
Wednesday's and Thursday's declines held above the important support levels of SPX 1193 and NDX 1500 and produced what looks like the beginnings of an impulsive bounce in all of the indices we look at: SPX, OEX, RTY, NYA, DOW, and NDX. Having said that, the action from the last two sessions has provided some very important technical data.
Specifically, yesterday's lows in the SPX, OEX, DOW, and Russell 2000 all overlapped the price peaks registered on Feb 15-17th. This has very important longer term bearish implications. You already know we have been looking for an important peak to form based on the completion of the bounce from the March 2003 lows and the August 2004 lows. What we have been (patiently) waiting to see is a completion of the pattern off the January 24th lows. The overlap of today's prices with those peaks from mid February strongly suggests that the pattern that is developing off those January 24th lows is an ending diagonal: a terminal pattern. It needs one more peak slightly above the March 7th peaks of SPX 1229.11, DOW 10984, OEX 586.81, and RTY 647.64. Such a peak, should it come next week, would be THE set up for lower prices that we have been looking for in these indices, as it would complete the minimum requirements for an ending diagonal pattern.
Having said that, coming below SPX 1193, OEX 570, DOW 10690, NDX 1500 and RTY 623 anytime before a new peak is registered would mean the peak we are looking for has already been formed at the March 7th highs. Though this last remains less probable a scenario than one last attempt at a new peak, we must be aware of it. As a result of these conditions, the analysis becomes binary: (1) await one more peak above the March 7th highs in all four of these indices to look for prices to move aggressively lower or (2) wait for a break below the critical support levels just mentioned to begin looking to position for weakness.
The NDX pattern remains much more bearish than any of the blue chip indices, a divergence that we hear few strategists or technical analysts lament, despite the fact that the same condition presented itself in 2000. The entire NDX move off the lows from January 24th is overlapped and clearly corrective. From a trading perspective, we would very much like to see a final move to the 1564-1567 before an aggressive move lower, while the blue chips move to new peaks. But such an outcome is far from assured given the relative weakness of this index.
For now, we think patience is warranted while prices are below key short term projection targets and above key breakdown levels. Ideally we will see the blue chip indices struggle to new peaks over the next handful of sessions while the NDX does the same. Otherwise, a break below key levels will cause us to abandon a call for new peaks and start to position for weakness for the first hard, sustained and serious decline in the markets in more than 2 years (not advice).
Please note: We are now able to offer our proprietary complexity model analysis on both stocks and/or stock indices as a daily service to institutional investors and a select number of individual investors. There are several different services available; each are provided on a monthly subscription basis and cover all U.S. indices and all U.S. stocks. Please contact us for details and rates.
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