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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 short term bullish divergences we noted in Wednesday's update produced a small bounce Thursday that so far looks corrective and labored. The key to the short and long term situation here is now straightforward: we need to see 5 clear waves down develop from the peaks of March 7th in order to confirm that the March 7th peaks were THE peaks from which a major bear trend could develop.

So far the decline is very much a "3" wave move: the March 10th lows as wave 1, the March 15th peaks as wave 2, and the March 16th lows as wave 3. One more small "up-down" sequence where the "up" move does not overlap with SPX 1201 (the lows from March 10th) would produce the "5" wave move we are looking for to confirm the bearish trend. If such a pattern plays out over the next few sessions (and we would note that an interim DeMark trend exhaustion indicator registers today and Monday with new price lows) we would then be in a position to expect a multi-session bounce that will be the best risk/reward setup in years for a move lower (not advice). But prices need to develop a clear 5 wave move in order to gain comfort in the bearish case. On this front the SPX, DOW, NYA, and OEX are all in a position to do this with one more up-down sequence from the lows on the 16th.

The RTY does not look nearly as straightforward so we will withhold our view on that index until we get a sense of what these other blue chip indices are up to. If prices make a spirited run up after leaving behind only a 3 wave decline from the March 7th peaks, that will signal that new peaks above those March 7th peaks are forthcoming and we'll evaluate accordingly.

For the NDX, the pattern remains bearish though here too, the very short term action of the last several days is unclear, as it has been overlapped and not clearly impulsive to the downside. The bearish interpretation suggests using a trailing stop at the peaks from March 15th: any move above that level would argue that a larger upward correction is underway rather than the highly bearish third wave down count. No clear picture presents itself at the moment: we'll wait to see if a "5" down is produced in the blue chip indices or not and then review accordingly.

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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