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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, it remains within an important leg down that should eventually see prices reach the 1060 level or lower but given the oversold nature of the market and the Elliott wave pattern, the final C wave of a wave 2 bounce to 1125 +/- is the most probable trading scenario. We remain on the sidelines until a cleaner picture emerges that either confirms that a move to 1125 is underway or provides further evidence that prices will not find support at 1085 and instead will head toward our lower 1060 support area. Though the NDX did impulsively move below the 1368/69 area (by less than 1 point), and met the criteria we were looking for, there too the picture remains a bit murky. Though a trend change bounce cannot yet be confirmed, the likelihood is that prices do move toward our previously stated targets of 1420-1430. Same with the DOW: it met the criteria for a bounce but afternoon price action does not confirm that the 10007 low was an important pivot point for prices to move higher to 10280-10340. It's possible that the SOX semiconductor index may have found a bottom at Monday's 453 low, as trade moved impulsively up from that point to yesterday's highs. At this stage a good risk/reward setup has not emerged - if it does we will highlight it here.


S&P 500 (SPX)

Though yesterday's AM action did move impulsively to the 1085 area we were looking for, the action after that pivot was confusing in its Elliott pattern insofar as it can be interpreted in both a bullish and bearish fashion. As a result, and combined with the fact that our Demark indicators are not providing any real clues to the near term action, we cannot make a confident call as to which way things unfold at these prices. The weight of the evidence suggests that prices will soon move to 1125 before failing and heading toward our initial 1160 target if not the 1120/30 level. But given the crosscurrents in Elliott pattern and the lack of clear Demark trend exhaustion indicators, we prefer to stand aside until more of our indicators line up.

The larger picture, however, remains thus: our combined technical indicators (Elliott, Demark, and momentum measures) suggest that prices should eventually move to, at least, our initial target of 1060 and probably 1020/30 over the next several weeks before a meaningful bounce can be expected. This is the next high confidence setup that we are targeting. We will simply have to see what happens to prices in the next several sessions to determine if that 1125 level is seen first or if prices stay within this range before failing anew.

Nasdaq 100 (NDX)

Though the NDX did move down in an impulsive fashion (5 waves) to the 1368.08 price yesterday AM (and thus it met the bare minimum requirements we were looking for), it was anything but "clean". The bounce from the 1368.08 price did take an apparently impulsive form (5 waves up) and the afternoon retreat from the 1391.87 high did stop at almost the exact 61.8% retracement level (1377.33), so this is at least cursory evidence that the 1368.08 price was a possible important pivot point to higher prices. However, the Demark indicators did not register any important trend exhaustion points at the low. Our hourly momentum indicators did not confirm the new low in prices in the NDX yesterday morning, so that is added evidence to the near term bullish case.

In our view, IF the 1368.08 price was a pivot low and the afternoon move up from that level was the first impulsive move up in the developing ABC bounce to the 1420/1430 level, then trade this AM should pretty much move aggressively up confirming that the 1377 afternoon low (which stopped at the 61.8% pullback level) was the wave 2 of wave B pullback in the move toward 1420/1430. We would look for a bounce toward a minimum target of 1415, with possibilities to 1430. We would become cautious on a technical basis breaking under 1373.

Keep in mind our ongoing caution: this bounce is simply a wave iv bounce that could eventually post new lows beneath the 1368 level (1320ish) before the next bounce can be anticipated. So please be careful: surprises will come on the downside, not the upside for the next few weeks.

Dow Jones Industrials (INDU)

The DOW is "cleaner" than the SPX but not as "clean" as the NDX from an Elliott wave standpoint. Like the NDX, the DOW met the criteria we laid out for a "new impulsive low beneath 10012 and near the 10001/10003 area." Ticking at 10007.56 met those conditions for a bottom. As well, the move up from that low traced out a five wave impulsive form, adding further evidence that the 10007 was a solid pivot point. However, the late PM selling yesterday brought prices back down to the 10016 level, which is below even the most extreme Fibonacci retracement point (the 78.6% retracement) we would like to see for a wave 2. This "deep" a correction of the impulse wave up from 10007 doesn't automatically invalidate the 10007 pivot point (only a move below the 10007 low would do that), but it does make it much more suspect as a "good" low.

Demark indicators, just like with the NDX did not give off any good trend exhaustion triggers at the 10007 either, leaving us a little less confident again about that 10007 point. However, momentum indicators were not confirming the 10007 new low, so at least that indicator did suggest a bounce. However, the two most powerful ones in our toolbox (the Elliott wave and the Demark indicators) did not.

As a result, the technical viewpoint on the DOW remains unclear and traders should watch to see how the action unfolds for the moment. What makes the water murky is the clear evidence that the market is oversold on many levels (put/call ratios, down days vs up days, down volume vs up volume, etc.). On the other hand, neither of our 2 important indicators are suggesting a good low has been struck. Price action today may confirm that the 10007 level was a good low: prices would need to rise from the open and never look back, posting a new high above 10108 to make us more confident in an eventual move to at least 10280-10350. Otherwise, a new low beneath 10007 is entirely possible and we'll have to reassess our indicators on that action.

Philadelphia Semiconductor Index (SOX)

The SOX index was up strongly yesterday and in an impulsive fashion to boot. We were looking for a low to be struck around the 449/451 level to play a bounce to the 477/490 level. Prices rose right from the open yesterday instead. In hindsight, it is possible that the low struck on Tuesday 3/23 at 453.37 was close enough to our cited support area to qualify as a completed Elliott wave iii low. IF that 453 level was the low, it did so without any good Demark or Elliott wave indicators suggesting as much, which is why we were looking for one more leg down to the 449/451 area.

At this stage, a three wave impulsive move up from the 453 level can be seen over the last two days: wave i (453-463), wave ii (463-467), and wave iii ending yesterday pm (457-472). Given that the lower end of our target range is 477, the risk reward seems skewed in toward the downside and we think it's advisable to wait it out on the SOX until a better trading setup emerges.

The most likely pattern from here is for prices to move up to 475 in the final leg of the "A" portion of an ABC rebound that could take prices to the 480-490 level for the end of this wave iv bounce. If 475 acts as resistance, a pullback of a day or so could take prices down to the 462-466 level before moving up impulsively in one last C leg to the 480/490 area before failing and heading lower in a 5th wave toward the 435/445 area. This is obviously speculation as we'll have to see how prices act at each stage to determine if this scenario is likely. The most important point, however, is that a three wave multi-day move toward the 477-490 area would likely set the stage for a move down to 435/445. At this stage, we remain neutral on the SOX until a wave B decline to the 462/466 area can be confirmed. At that point, a bounce toward 480/490 is supported by the analysis. Till then, we'll simply have to watch and see how our indicators line up.

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