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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.


No change from yesterday's call on the SPX: "the SPX remains within an important leg down that will eventually see prices reach the 1065 level...the Elliott wave count in the SPX is open to multiple interpretations but all of them suggest prices will eventually move toward our initial 1065 target: the question for traders is if prices rally toward 1110-25 first or head straight there. On balance, the evidence points toward prices moving lower from here rather than bouncing meaningfully into the 1125 area." The NDX still needs another new impulsive wave down below the 1368/69 level, preferably to our 1360/65 target area to provide a multi-day bounce. The Dow, too, still needs a new impulsive wave down beneath 10012 that holds at or near the 10000 mark or possibly 9940/9960 could complete the Elliott count and bounce toward 10280/10460. The SOX semiconductor index may also be near a tradeable bounce: if prices find support in the 449/451 area, a wave iv bounce to 477-490 could ensue.

We still want to caution traders that picking bottoms in this environment will be very tricky: we counsel remaining cautious and waiting for clear evidence that a tradeable bottom has been struck before dipping a toe in the water. Remember: these moves down are not yet near complete, so the overall bias should remain to the side of caution.


S&P 500 (SPX)

No change from yesterday's AM note: for the SPX the weight of the technical evidence suggests that prices may eventually move toward our 1065 initial target in the SPX, but traders should be aware that a bounce to 1125ish remains a possibility, as both the NDX and INDU are poised for a possible bounce from slightly lower levels. If the NDX and INDU do bounce, the SPX count could still conceivably (small probability) be in an "expanded flat" correction for wave 2 or possibly could still be completing its first impulse wave down (again small probability).

If the 1085 area provides support for the SPX, then our alternate interpretation that calls for a final wave 2 bounce possibly to the 1125 area where we would become cautious. Today then, traders should key off of the DOW and the NDX: should they find a good bottom at our cited support levels, the SPX is likely to rally as well to the 1020/1025 area before falling hard toward our initial 1060 target, with an increasing probability that the SPX gets to 1025/1030 before the next real bounce. If the 1085 area does not hold and both the NDX and the DOW fail to find support at our cited levels, prices could fall at least to 1060 and more likely 1020/1025.

Nasdaq 100 (NDX)

No real change to our yesterday note on the NDX either: we're still looking for an impulsive move down (5 wave) that finds support in the 1360/65 area to complete wave iii down from the 3/5/04 1494 high. Based on yesterday's price action, it is possible that this final 5th wave we're looking for started at the 3 pm high of 1387.68, with wave iii underway right into the close. If this interpretation is correct, we'll need to see where prices in this wave iii end before determining what target within our 1360/65 area could support prices.

As an alternate on the above scenario, the NDX may be tracing out a diagonal triangle (from the 3/22 1369.36 low) for the internal wave (iv) of this final impulse wave down from the 3/17/04 1432 high. Diagonal triangles in Elliott terms have decreasing volatility, trace out an A-B-C-D-E pattern (5 legs but each leg takes a "three" wave form) and adjacent legs usually have some phi relationship (0.618) between them (e.g. C=0.618*A or E=0.618C, etc.). If this is correct, this small 4th wave corrective pattern should end today with an "E" leg up toward 1381ish before falling away toward our 1360/65 target.

As we admonished in the SPX discussion above: picking a bottom will be difficult. Traders should not abandon their cautious bias until a more high confidence setup that includes the completion of all three of our trend reversal tools comes to fruition: Elliott wave count, Demark indicators, and momentum measures. So far, we are close, but not quite there.

At this stage of the decline there are no good risk/reward trades in the NDX until we see that either the 1360/65 area holds an impulsive decline into that range or it does not. Therefore the strategy is simple: IF prices find good support and are "five down" into the 1360/65 area and we get momentum non-confirmations and some Demark selling exhaustion indicators, a bounce could occur. If prices do not find support there and instead fall impulsively thru the 1360/65 area, we would be looking for a potential fall toward 1300-1320 (not advice -simply our opinion).

Dow Jones Industrials (INDU)

Like the NDX, there is little new to say with respect to the DOW from our yesterday note. We still need a complete impulse wave down below 10012 to complete the first larger degree 5 wave decline from the February 19th high. Again: our downside projections are first 10001/03 (ideally as it corresponds to the psychologically important 10000 level) and then, if the 10000 level fails to hold, the 9940/9960 area before a bounce could be in the offing. Should prices bounce from the 10000 level, we are targeting the 10280-10460 area for a bounce target before prices resume their decline to well below 10000. If prices bounce from lower levels, we will reassess potential upside targets.

We're still looking for the DOW at 10001/10003 (or at least below 10012) before a bounce can be expected that takes the developing wave 2 to the 10280/10350 area before restarting the next, more violent leg down toward initially 9500 at least and more probably 9100 or so.

Philadelphia Semiconductor Index (SOX)

We are including a technical analysis of the SOX today because it, like the NDX, is poised for a bounce that could take it perhaps 6% higher in the next week or so, as its wave iii down seems to be coming to a near term support levels in the 449-451 area. Just like the NDX, stops on long positions should be kept very tight as the SOX does not seem close to any sort of Elliott wave completion yet and needs to move decidedly lower to complete the most probable Elliott wave count we are seeing.

Specifically, we see the larger Elliott wave count thusly: the top on Jan 12th at 560.68 counts as a completed ABC correction from the October 2002 bottom struck at 209. The January top coincides with several Fibonacci relationships within the ABC wave off the October 2002 bottom as well as having several weekly and daily Demark trend exhaustion indicators register at the top. So confidence is high that the January top was of an important degree. The first impulse wave down from the Jan 12th high ended on Feb 4th and wave 2 rebounded until Feb 19th at 535, which was almost exactly a perfect phi retrace (0.618 of wave 1 down). The high at February 19th then started wave 3 down: within wave 3 down, the 449/451 area is the target for the bottom of wave iii of larger wave 3. There is a cluster of several Fibonacci support targets within the 449/451 area at multiple degrees of trend.

Demark indicators at 34 minutes charts and less are showing trend exhaustion indicators and momentum on the hourly chart is showing a small non-confirmation for this particular 5th wave toward the 449/451 support area.

Should prices find support in the 449/451 area, the Elliott count and Demark indicators suggest that the SOX could bounce to the 477-490 (a 6-9% move) area before failing there and moving to new lows below 449/451.

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