Advanced Technical Update
Note: the following analysis is formulated as an assimilation of technical indicators. It is offered as education and not intended as advice in any way.
Prices pulled back to Fibonacci support yesterday before bouncing somewhat impulsively into the close. The upper targets we have been eyeing: SPX 1134/1136 and NDX 1430/36, should provide stiff resistance if our count is accurate that this corrective action is ending soon. The next leg down in the SPX could take prices at least 60 points lower and more probably toward 1040/60 before another meaningful bounce in our opinion.
The NDX pattern is more complete but we could see at least another leg down toward the 1384 level and more probably toward the 1360/70 level before another bounce. We would become cautious at the above target prices for a potential move down.
S&P 500 (SPX)
Prices held yesterday at the 50% retracement level and then bounced into the close in what looks like a terminal C wave that should end in the 1134-1136 area before falling back into the downtrend. There is also a chance that prices end at or slightly above yesterday's high at the 1125 level, so we'll have to stay alert for any signs of trend change at that level as well. Regardless, the larger degree Elliott pattern calls for a resumption of the downtrend to begin at either the 1125 level or the 1134/1136 level for a move back to 1040/1060 before another meaningful bounce can be expected.
Short term Demark indicators and momentum measures are close to signaling an end to this countertrend move, as the C wave of this ABC wave 2 rebound is now playing out. Given the options expiration today, it's a difficult call as to when this might happen, so we'll just have to focus on our cited resistance levels for evidence.
Nasdaq 100 (NDX)
The NDX held at the 61.8% Fibonacci support level yesterday but did not make a new high like the DOW. So, unlike the SPX, the confidence in a new swing high above the A wave high Wednesday of 1432.23 is not guaranteed. Why? Because the AM drop was indeed impulsive while the afternoon move was highly overlapping and corrective-looking. Given that, it is possible that the next wave down (toward 1384 at first and toward 1360/70 thereafter) could have started at the Wednesday high of 1432.23 and yesterday's afternoon bounce being the wave ii rebound of that first impulsive leg down. If that interpretation is correct, prices today should not move much higher than 1425/27 before starting the next leg down toward our lower targets in our view.
If indeed prices, like the SPX and the DOW are set for a C wave high above the A wave high at 1432, the two targets are 1434/36 and a lower probability target of 1445. Should prices get to these levels, we would become cautious as prices could find a better bottom at lower levels.
Shorter term Demark indicators are not providing much evidence of a trend change at this point, though momentum has clearly waned from Wednesday's highs. So we'll have to rely on the Elliott wave pattern and our Fibonacci resistance targets above to let us know when the next leg down in underway for the NDX.
There are three areas where prices could find important resistance: (1) slightly above 1425, (2) at 1432/34, and (3) 1445. We believe the highest probability is that prices fail at the 1427/28 area and would become cautious there based on the analysis (again not advice).
No real change to charts, please see yesterday's report for wave count specifics.
A note on our technical indicators:
The basis of our technical analysis employs a proprietary combination of Fibonacci, Demark indicators, Elliott wave, and momentum measures (MACD, RSI), across a multitude of time frames to identify support, resistance, and buying and selling exhaustion levels for indices and stocks. We then compare these indicators against prevailing sentiment measures, looking for clearly excessive bullishness or bearishness, which generally provides the best risk/reward characteristics. Finally, we attempt to identify stops that are as tight as possible but that allow for some wiggle room in our technical analysis. Our stops are placed at points that would "invalidate" much of the supportive evidence behind the technical call and thereby signal that other buying and selling forces are at work than we have concluded.
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