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Advanced Technical Analysis


S&P 500 (SPX)

Surprisingly, prices rebounded strongly right from the open yesterday and never looked back, impulsively moving up into our initial target prices (1120/1125) at the close. Volume was light but breadth was strong and a clear impulse move up from Tuesday's 1102 low can be seen into the 1125.76 high. The question now becomes whether the pullback we can expect today falls to a new low or stops at some phi-based retracement level.

As you set out yesterday, the Elliott count wasn't exactly clear whether a final 5th wave low was complete at the Tuesday 1102 low. We were working on two scenarios: "(1) a completed five wave down impulsive move ended at yesterday's [Tuesday's] 1102.61 low and should see a move toward our 1125-1140 resistance levels OR (2) that prices remain in a "flat" wave iv correction that should top around 1120 before seeing another smaller leg down toward very slightly below yesterday's 1102 low." In either scenario a bounce to the 1120/25 area was operative, the only question being whether prices turn back from 1120/25 and fall impulsively to a new low slightly beneath 1102 OR they pullback from the 1120/25 area in a corrective "B"-wave fashion and move on toward our 1134/1140 higher target.

Only more price evidence will enable us to more confidently state which of these Elliott scenarios is playing out. Either (1) prices will fall tomorrow in an overlapping "B" wave fashion into support at 1117-1111 and find a good bottom for the last impulse leg ("C" wave) up to the 1134/1140 targets OR (2) the SPX will fall impulsively (a 5 wave pattern) through those levels toward the 1098-1102 area. We'll simply have to see how prices react at those levels tomorrow to get a better handle on whether 1134/1140 is seen first or if 1102 happens sooner.

For readers that are somewhat skeptical of the use of Fibonacci ratios in technical analysis, we want to point out an interesting phenomenon that we have observed many times in our work with these indicators. Yesterday's SPX high was 1125.76; why is that price important? 1125.76 is exactly - exactly - the 38.2% retrace of the entire move down from the 1163.23 high to the 1102.61 low. Price turned back right at that price in the afternoon, closing slightly lower into the close. We bring this up for two reasons: (1) so readers understand the power of Fibonacci price relationships and (2) in our experience, a one day, one wave impulsive move up right into the first (the 38.2%) resistance level often means that that move is an A leg of a larger ABC rebound that should move higher than the 38.2% retrace after a pullback and a subsequent impulse move up. So although we cannot confidently state that prices will find Phi support tomorrow and then impulsively move up to a new swing high, our experience with these indicators suggests it is the higher probability move. We'll just have to wait and see how prices react tomorrow at 1111-1117.

Hourly Demark indicators ticked at an "8" and will tick at a "9" at the open today. Oftentimes, a completed, valid 1-9 sequence in the Demark indicators will have a 1 to 4 price bar pullback (on the hourly chart then, a 1 to 4 hour pullback) before resuming the advance toward a more meaningful "13" hourly trend exhaustion indictor.

Momentum measures were confirming the price move yesterday as were breadth. So momentum is not yet giving us a valid sell or short indicator for this index. But remember that momentum alone is not helpful in this regard; we only use momentum indicators to confirm or deny the Elliott wave and Demark indicators.

Based on the above observations then, watch to see what happens with prices at the 1111-1117 price support area. If an ABC down move tomorrow into the midday/afternoon finds support there, the probabilities for a move up to the 1134/40 area become much higher. If prices fall impulsively through that support area, the probabilities then become higher for another move slightly below 1102. If prices dip below 1107, the more bearish case is operative. More importantly, however, if the wave form into the 1111-1117 area.

Once again, we have said in each of our missives that a bounce that may occur is probably 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 (whether at 1125 or 1134/40). 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.

Nasdaq 100 (NDX)

Like the SPX, the NDX bounce took prices immediately into the cited target levels (1432/34) without correcting much at all through the day. It was a clear impulse move with a fifth wave that looked like it ended right before the close with a tick high of 1432.23. Like the SPX, a pullback is likely as most short term Demark indicators were flashing trend exhaustion indicators. What happens at the relevant retrace/support levels will be key to determining whether higher prices will be seen in this move or if in fact a rebound may be already over at 1432.

The 1432.23 high in the NDX was just 0.14 points away from an exact 38.2% retrace of the entire move down from the 3/5 1494 high to the Tuesday 1394 low. And like the SPX, we have found that a clear, impulsive, one day move up to the first important resistance level (the 38.2% retrace target) suggests that there is a rebound of larger degree playing out. And given that the NDX is much more oversold than the SPX has been, it is more reasonable to expect prices to correct this move in an ABC down move fashion in the next day or two before undergoing a "C" wave impulse move up to the higher target levels we had cited: 1445/1455.

Much will depend, like the SPX, on what happens on any correction of today's advance. The 38.2% to 61.8% retrace of yesterday's up move would take prices into the 1409-1418 support area for a potential B wave pullback in this developing ABC rebound from the 1394 low. If an overlapping ABC pullback develops tomorrow that holds in that area is is not supported by momentum measures, the likelihood of a C wave playing out to the 1445/1455 area increases substantially. However, if prices show impulsive (i.e. a 5 wave decline) movement down through that support area, then the more bearish scenario is unfolding that suggests that wave iv ended at yesterday's high and that a new low toward the 1360-1370 area is underway.

Hourly Demarks, just like on the SPX, show a "9" at the close yesterday, indicating that a 1-4 hour pullback is possible. So if the bullish scenario is operative, a 1-4 hour pullback today that takes prices in a corrective fashion into the 1409-1418 area and shows no momentum confirmation should find a good bottom for the final C leg to the 1445/55 area before the risk to the downside increases.

If prices move impulsively through these support levels (1402) then the likelihood becomes high for a move to 1360-1370. Once again, we want to stress that this is likely a scalp trade since prices are expected to eventually post new lows for this move down from the 2/19 high in the 1360/70 area at least in our opinion. If prices get to the 1445/55 area, we would become cautious. Otherwise, we will wait for a confirmation that the bearish case is underway with a new low beneath 1402. As always, this analysis describes our thought process and is intended for education not for guiding your investments.
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