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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.

Monday's and Tuesday's action, by dropping to new lows, solved the short term riddle: The very short term remains open to several competing (and viable) interpretations: either the lows registered on March 22nd were good lows from which a bounce will take place or else some more choppy, sub-dividing action lower could take prices to new lows over the next several sessions.

Given the divergences we are seeing on these new lows in ALL the short term contextual measures that we look at (momentum, breadth, ticks, down vs up volume, and volatility) combined with some important internal Fibonacci relationships, a potentially completed impulse pattern and some cumulative DeMark trend exhaustion signals, we think the probabilities are meaningful that lows found yesterday or today could provide a good bottom from which to expect our "week long + bounce" that we have been referencing (not advice). It is important to note the treacherousness of the current trading environment. We don't want to be sanguine here about the fact that the long term trend is now decidedly bearish: the March 7th peaks are likely a very important peak from which a significant bear trend has started. Given that the dominant trend is now bearish, playing against that trend by trying to pick a bottom and scalp the long side can be quite risky.

Why? Because some of the daily measures of overbought/oversold are not clearly at an oversold position. If SPX 1163 and then again SPX 1152 do not substantially hold prices, things could well get violent on the downside; such an outcome has a non-trivial probability. That said, markets do not move in straight lines, and our complexity models are suggesting the probabilities for a bounce of some 200-300 basis points and lasting anywhere from 9 to 14 calendar days is a high probability.

The aggressive interpretation, for a long side lift today at a new swing low requires the tightest (and most disciplined) of stops: SPX 1159, NDX 1450, and DOW 10320. Otherwise, the prudent thing to do is to simply be patient and wait for the markets to "come to us" in a multi-session bounce to our targeted Fibonacci resistance levels: SPX 1188/1205, DOW 10600/800; NDX 1495/1515. At those price targets, our models are suggesting that the next impulsive move down (after the expected bounce) could well be the most violent decline in 4+ years (not advice). Stay tuned; this is an exciting time to be watching the markets, and our models, evolve.

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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No positions in stocks mentioned.

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