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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.

The last two days price action has increased the probability that the peaks registered on March 7th were the peaks we have been looking for over the last several weeks. The SPX and DOW both broke important trendlines that had been supportive of prices from January, new lows were struck yesterday, and the small but short term bullish divergences we noted in Monday's note have not yielded much in the way of any bounce. These things, plus the pattern down from those March 7th highs suggest that those peaks were likely very important peaks from which a bear trend is likely to manifest for several months.

Having said that, there remains a chance - a slim chance - that the SPX and DOW (and possibly the RTY, OEX, and NYSE) could attempt a new peak (recall our standing 1234 target). After all the SPX has not come below the make-or-break price of 1193 which, by our work, would eliminate any potential for a new peak. Furthermore, the small divergences we mentioned on Monday have now grown larger and more numerous: momentum, ticks, breadth, down vs up volume, and volatility have all failed to confirm (so far at least) the new lows registered in the DOW, NDX, and SPX.

This is suggesting that the decline from March 7th may indeed be ready for a corrective rally for several sessions back to Fibonacci resistance. Indeed, from a trading perspective we hope this takes place; we are personally loath to short weakness, preferring instead to sell strength that we can be confident is counter-trend and is at important Fibonacci resistance (not advice).

At current prices, with the short term bullish divergences we see, the slightly oversold hourly picture, and the fact that prices are right at important trendline support, traders are in no-man's land insofar as a very good risk/reward setup for either the long or short side is absent. Net/net: for the blue chips we have higher confidence that the March 7th peaks were very important peaks from which a sustained multi-month bear trend will emerge. Whether prices break down hard from here however, we have far less confidence and no good risk/reward presents itself. Frankly we are hopeful that the short term divergences we see (in all 5 categories we described, which is somewhat infrequent) results in a multi-session rally back to important Fibonacci resistance that could set up for a move lower.

Monday's note cited those resistances as: SPX 1210-1220, DOW 10850-10900, OEX 578-581 and RTY 633-639. Weakness could occur off of those levels with trade moving through SPX 1223, DOW 10930, OEX 584, and RTY 643 forcing us to the sideline. For its part too, we hope to see the NDX bounce, with the rest of the market, to Fibonacci resistance at the 1520-1540 to set up for a move lower (not advice) with a move past 1549 forcing us to stand aside. Any move substantially below the NDX 1490-1500 area (which has been 'obvious' support since January) would likely lead to a serious third wave decline in the NDX.

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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No positions in stocks mentioned.

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