Advanced Technical Analysis
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 fell impulsively on Friday from the spike highs registered on Thursday's Bin Laden rumor. Given the impulsiveness of the decline, odds are that the next leg down may have started in the indices, toward SPX 1065 and NDX 1385 or perhaps 1360. There is a chance that SPX prices find support slightly below 1100 and then bounce again to 1120/30 area before falling away toward the lower target of 1060. We'll assess if/when prices reach the 1100 level. The NDX is in the final 5th wave of the wave 3 down from the February 19th, 1524 high; two targets present themselves: 1385 +/- and 1360. We'll await clear Elliott wave and Demark indicators to suggest which will arrest the decline. Rallies in the NDX should be shorted toward our initial target of 1385. New SPX shorts will have to reassess as prices close in on 1100 +/-. Most importantly, neither of the larger degree wave patterns are complete yet, with both indices eventually pointing even lower than SPX 1060 and NDX 1385 in the next several weeks.
S&P 500 (SPX)
After a small AM bounce, SPX prices fell away impulsively right into the close on Friday, suggesting that the next leg down (either Wave C of an ABC decline or wave 3 of a larger impulsive trend change) may have started at Thursday's Bin Laden rumor spike high 1125.50. At this stage, two possibilities present themselves, both bearish until at least 1060: (1) that prices are tracing our a "flat" wave 2 or B correction that will find support at 1100 +/- and then bounce to Thursday's 1125 +/- high before falling away to 1060 OR (2) the next leg down truly is underway and prices will accelerate lower toward our 1060 target sooner. At this stage the indicators do not favor one or the other. Most importantly for traders is that both potential patterns suggest prices make their way to 1060; the difference is simply when.
Hourly Demark indicators have started a new "countdown" with Friday's selloff, registering a TD sequential "2" (of an at least 1-9 countdown). If prices remain in the downtrend, a possible "8" or "9" won't trigger until last trading hour Monday or first trading hour Tuesday. If the 1100 area is to provide a support for a small bounce, ideally it will do so on either an "8" or "9" TD Sequential indicator. If 1100 does not provide support, look for this developing TD Sequential countdown to process all the way to its completion, which could be at least 3-4 days, possibly 8. Hourly momentum measures have rolled over too, suggesting the next leg is underway. The question remains if the 1100 area will provide a brief respite to the selling along the way.
We would reassess positions at 1100, owing to the possibility that 1100 +/- may bounce the SPX back to 1125 +/- before falling toward our targets. If prices unexpectedly climb today, we would get cautious at 1116.
Nasdaq 100 (NDX)
The NDX fell harder and faster than did the SPX, providing more evidence that it is tracing out a more mature wave than the SPX. The most confident scenario for the NDX remains a decided move lower. Like the SPX, the NDX could be tracing out a "flat" correction that bounces from 1390/1395 level, but the probabilities of that are lower than in the SPX. We'll keep an eye on that area as prices move down toward them.
We have been targeted 1360 in the NDX as a potential wave 3 support but another possible support layer is in the 1385 +/- area, as that level would make wave i and wave v (within wave 3) related by phi (i.e. at 1385, wave v = 0.618* wave i). In addition the 1385 area was a previous support area from December 16th. So we'll have to see how the Elliott count and the Demark indicators evolve as we head toward 1385 to determine if it has the ability to provide support for a wave iv bounce of the entire leg down that started on Jan 20th.
Hourly Demark indicators, like the SPX, have started a new "countdown", further suggesting that the next leg down is underway in the NDX. As of the close on Friday, an hourly "3" has registered, with a possible "9" taking place in the last hour of trading today. As this is the last leg down within a larger 3rd wave, it is highly likely that this TD Sequential countdown progresses toward a "13" completion, which could take, like the SPX, 3-4 days and possibly a few more. Momentum measures, just like the SPX, have rolled over and starting their descent toward oversold, further evidence that the next leg down has started in the NDX.
We have an eye on 1385 or 1360 as one of those levels could provide a trade-able bounce for wave iv larger than the bounce the NDX saw from 3/16-3/17 which was 2.7%. And once that wave iv bounce is completed, we will expect a last wave 5 down below whatever low is registered over the next several days (either 1385 or 1360).
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