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Technical Update


S&P 500 (SPX)

In this morning's note, we suggested that either (1) the SPX could trade up through 1125.26 and confirm that last Thursday's low was the bottom of Wave A or Wave 1 OR (2) that prices would find one more new low at/under 1105 to "complete" the first 5 wave impulse sequence down from the 1163 high. Today's price action is suggesting that scenario (2) is playing out, further price moves under 1110 make that a higher probability as the day wears on. That said, today's action could still be either a flat correction (of Friday's move up) that should bounce from the 1105 area. Or it is in fact the final 5th wave of the entire move down from 1163 and should find support just under 1105 (recall our 1102 target is perfect Fibonacci symmetry for this wave sequence).

Importantly, either of those conclusions suggests that the 1100-1105 area is a better risk/reward long scalp than trade setups we have seen so far. If a new low is seen at/under 1105 it will almost certainly do so on diverging momentum on intraday charts (of an hour or less in size). That's important, as it would be the first time we have seen such a positive momentum non-confirmation of a low (should we get one) on an hourly chart.

We want to stress that a bounce that develops from this area will likely only be counter-trend, last a few days, and/or take us to 1127-1140 area before failing again and dropping 40-60 points (perhaps more) from whatever B wave retracement high is seen. We will see if another new low that shows positive momentum divergences in the 1100-1105 area.

Keep in mind that the Fed meets tomorrow and is expected to release its decision on interest rates at 2:15 pm. Given the very negative reaction that stock prices had to their last release, we believe the probability of sideways to lower prices from now to then that takes us to the 1100-1105 area is the highest probability scenario. If it's accompanied by momentum divergences and Demark selling exhaustion indicators, that would be an ideal combination of Elliott wave completion, Demark, and momentum indicators that could set us up for an advance from 1102 to 1127-1140. Stay tuned.

Nasdaq 100 (NDX)

The NDX has already retraced almost 78.6% of the move up on Friday, which is an unusual and very deep correction if Friday's up move was the start of a multi-day countertrend move to our cited resistance. Corrections that retrace deeper than 61.8% of previous moves make the probability much higher that a flat correction (one that traces out a largely sideways pattern in its ABC rebound) is taking place from Thursday's low or that, like the SPX, one more new low may be playing out.

At this stage of trade, it's difficult to make a definitive high confidence call. Three scenarios present themselves: (1) If new lows are seen for the NDX below last Thursday's low, it will undoubtedly be done on positive momentum divergences so that argues for a long trade on new lows, like the SPX. (2) If a flat correction is playing out (which it looks like it is in the SOX by the way, with a final leg up to 487/89 before failing), then prices could stop at the 1402 area for a bounce back to 1431. Or (3) If the NDX is still just correcting Friday's impulsive up move, it should find a low in the 1406-1409 area before bouncing to our target retrace area of 1437-1459.

As always, this is technical analysis is offered in the vein of education and is not intended as advice.
No positions in stocks mentioned.

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