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Advanced Technical Analysis

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Summary:

Tuesday's moderate new highs in the indices suggest that, at the least, the impulsive move up has not yet completed, despite the fact that prices are not being confirmed by momentum and some hourly Demark trend exhaustion signals have been registered for the SPX and DOW, suggesting a top of some degree is taking shape. The question that remains difficult to answer is whether this top is the entire ABC bounce into resistance we were anticipating (more possible for the SPX than the INDU and NDX) or whether it is simply the A leg of that ABC bounce. At this point, we favor the latter of the two possibilities as corrections often have a time element to them as well as price; this corrective bounce has only been 4 days so far, which is disproportionately small relative to the "age" of the previous downtrend. Aggressive traders wanting to position for the B leg down (or possibly the start of the next important leg down to new lows) may have a chance to do so in today's session; we will wait for a clear 5 wave impulsive move down to confirm that a pullback is underway; whether that pullback is the start of only the B wave retrace before a move to new highs or is in fact the start of the next important leg down will be determined over the next several sessions.


Highlights:



S&P 500 (SPX)

SPX primary resistance remains the 1127-1130 area, with potential to 1140. It remains impossible to say with conviction whether the move up from the low has been either the ending C wave of the expected ABC bounce or is in fact just the A leg of that same expected pattern. What we do know is that prices on yesterday's new high were not confirmed by momentum indicators suggesting that the price action is weak and susceptible to trend change at any point.

The pattern from the low is not crystal clear insofar as no "clean" 5 wave advance can be seen. But, prices are in the important resistance zone of 1127-1130, a Demark trend exhaustion signal was given on the close yesterday, and momentum is not being confirmed here. So traders wanting to position themselves for a move toward initial resistance may well be able to do so today. We will await a clear 5 wave impulsive move down; that will most likely signal the start of a trend change of some degree: either one that takes the SPX back to 1102-1112 or indeed take the SPX to entirely new lows. Both are possible at this point, though a final C leg higher from the 1102-1112 area would be "cleaner" from an Elliott standpoint and would have the added benefit of being more proportionate in "time" to the down move from the 1163 highs.


The Nasdaq 100 (NDX)


The NDX is already in the heart of the most serious resistance targets we have identified: 1428-1461. The absolute upper limit resistance is at 1461: should prices move that level on the upside, our current count would be invalidated according to Elliott rules. The next most probable count would then be that the entire move down from the January highs has been a 3-wave ABC structure, which is merely a corrective pattern and thus would argue that the NDX will soon see new highs. So if the NDX is going to turn back down in either a B wave or in the start of the final 5th wave of the January high, it should do so very soon (and absolutely not exceed 1461).

Like the SPX and INDU, NDX prices are not being confirmed by momentum and "looks" like a largely complete 5 wave advance off the 1368 lows. Unfortunately, the hourly Demark trend exhaustion signals have not been registered as they have been on the SPX and INDU (the Nasdaq composite however, has, like the SPX and the INDU registered an important Demark hourly buying exhaustion signal). The 34 minute NDX chart has registered such a Demark buying exhaustion signal, but we tend to place more stock in the hourly signals, so we tell you this with some reservation. Traders wishing to position themselves for a move lower should the NDX move lower in either the B wave of an ABC rebound or in the final 5th wave to new lows from the January high, would be able to if a complete and clean 5 wave impulsive move lower takes place. As with the SPX. At this stage, prices have met all the initial conditions for a trend change, and we must await confirmation with a 5 wave move lower.



Dow Jones Industrials (INDU)


INDU resistance for this ABC bounce has been 10290-10468 and prices are now right at the 50% retrace level of 10379. Like the NDX, the INDU is already within important resistance levels and, given the complete (nearly so) wave structure, the lack of momentum confirmation on these new highs, and the Demark trend exhaustion signals that registered at the close yesterday, a move back down to 10150-10250 is a high probability.

And just like the other two indices, it's difficult to say whether this move up is the entire ABC bounce we were expecting (low probability) or if it remains only the A leg of that ABC bounce. Either way, a healthy pullback to the 10150-10240 level is likely. How prices react there should be telling as to whether prices need another new high to complete the ABC bounce or if the price action thus far off the lows of last week is enough. As with the SPX and the NDX, all the pieces are in place for a trend change of some degree, and given that it makes little sense to short into strength, we will await a clear 5 wave impulsive move down before becoming confident that a move to at least those support areas below is in the offing. Prices should not exceed 10470 by any real margin or else, like the NDX's alternate bullish count, the INDU may be signaling an eventual move to new highs above 10750.

No positions in stocks mentioned.

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