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Advanced Technical Analysis



S&P 500 (SPX)

Yesterday's price action followed the second scenario we were watching: a move to a new low below 1105 toward the 1102 level. 1103.36 in the cash market was the afternoon low and by our count was the minor 3rd wave in the final wave 5 impulse down from the 1163 high.

What that means is that another small up-down sequence is needed to complete this last wave, which started at Friday's 1120.63 high. As we have written, the internal Fibonacci symmetries of this entire impulse down from 1163 would be "perfect" from a Fibonacci standpoint at 1102. So a small up-down sequence that played out in the AM would complete the larger Elliott patterns from the high and have perfect internal Fibonacci symmetry to boot.

If you've been reading our stuff daily, you know that the Demark indicators we look at flashed two selling exhaustion indicators last Thursday on the hourly chart and we got a 4th wave bounce into resistance from those indicators. However, a new countdown (toward flashing another selling exhaustion indicator) started on yesterday's open. On the hourly chart, these selling exhaustion indicators ended the day yesterday at a "7".

Why is this important? In Demark rules, there is a pattern called a "9-13-9" whereby a fully completed selling exhaustion trend (the "9-13" part of that pattern) ends and then another 1-9 selling exhaustion pattern begins anew. As a general rule of thumb, 9-13-9's are potentially powerful indicators of a trend reversal. And they are pretty rare. This final 1-9 countdown will end at either the first or second hour of trading today, flashing an "8" and/or a "9" that is lower than both the previous "6" and the "7" price bars (in this case, prices that tick below 1105.80). All of this is a long way of saying that our hourly Demark indicators are setting up for a potentially powerful rebound IF prices in the first two hours of trade today tick below 1105.80. Given the Elliott wave count that we anticipate (one more small up-down sequence), this would align the hourly Demarks with the Elliott count, thus increasing the odds that a real low is being established.

As we mentioned in our intraday piece yesterday afternoon, these new lows, are not being confirmed by momentum indicators. That's a positive divergence, and further evidence that a possible low will be put in place this AM.

So all three of our indicators (Elliott wave count, Demark indicators, and momentum measures) are lining up for a possible low at 1102 today if we get one more small up-down sequence. Strategy-wise, with the Fed's announcement coming out at 2:!5 pm today, it's possible that trade winds its way sideways until then. Hard to say in advance. But we will be keying off 1102 in the first two hours of the trading day if it's accompanied by a completed Elliott wave count, our Demark hourly selling exhaustion indicators, and non-confirmation by momentum. All of these things remain the highest probability scenario (in my opinion).

We said in our headline that it's a do-or-die situation because these levels are important to provide a bounce IF the more bullish interpretation is operative (the one that suggests this leg down is an "A" wave rather than a more bearish and larger "1" wave). If the 1100 level (+/- 3 points) doesn't hold, price could unexpectedly accelerate lower and that would indicate that something much more bearish is afoot in the market as a whole, with ramifications toward 1070-1080 at least.

As we have said in each of our missives, a bounce toward the 1125-1140 level, is likely merely a counter-trend scalp, as prices are expected to trace out at least another impulsive-looking wave down from whatever bounce high we see in the 1125-1140 area. That next leg down could take prices toward 1070-1080 initially and possibly lower depending on where a potential bounce takes us in the next several days. As always, this is offered in the vein of education and is not intended as advice.

Nasdaq 100 (NDX)

The slight new lows in the NDX at 1399.87 right into the close complicates the Elliott wave count a bit for this index. In yesterday's intraday note, we thought one of three scenarios were playing out: (1) new lows like the SPX that completed a larger degree 5th wave, (2) a "flat" correction of Friday's move up that stopped at the 1402ish level, or (3) a correction of Friday's bounce that stopped at 1406-1409. With new lows for this swing yesterday afternoon, the last two of those scenarios becomes inoperative and the first, a new low that completes a larger degree 5th wave, becomes the working count.

The immediate Elliott wave count from Friday's high at 1431.40 needs one more small up-down sequence to complete itself, just like the SPX. Like the SPX, the first hour or two of market action is key, as the hourly Demarks are suggesting that a 9-13-9 is underway in this index too. Momentum indicators on the NDX as well are not confirming these new lows. So, that suggests that an AM move up that fails at 1404ish and then falls to make a new low under 1399 (1396/98 target) would complete the Elliott wave impulse down from Friday's high and have the requisite Demark and momentum indicators of a viable low.

But what about the larger Elliott count? The question for the Elliott count is: what degree 5th wave will potentially be completed if a new low is made this AM? The move down from the 1494 March 5th high could have already been completed at last Thursday's 1402.20 low (as we suggested was possible last Thursday).

If so, a new low today would then correspond to the next degree higher wave down, which is the 1524 high on 2/19. The problem with that scenario is that it is simply disproportionate from a Fibonacci standpoint: both in time and price. Disproportionate in the sense that much lower prices and more time on the downside would be needed to "equate" the first and fifth legs of this move, which Fibonacci and Elliott rules suggest. This means that either (1) the final 5th wave down from the 2/19 1524 high is underway and that the 1396/97 level will not hold today and prices will accelerate lower to the 1360-1370 level to complete the larger pattern OR (2) this AM's new low is in fact the final 5th wave of the impulse sequence that started on 3/5 and that a bounce to the 1434-1457 area will commence.

The benefit of this last scenario playing out is that it corresponds well with the SPX and the Dow, which suggest an imminent bounce. We'll know for sure today. Another piece of evidence in favor of the last scenario playing out tomorrow is that on the daily chart for the NDX, a Demark "8" selling exhaustion signal will be generated that could potentially suggest a multi-day rally. Again, not advice--I offer this as a glimpse into the technical "process" and an assimilation of known tools.

No positions in stocks mentioned.

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