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.
Wednesday's labored new highs in all three indices add evidence to the view that some degree of trend change is imminent if not already underway from yesterday's high. Importantly, for the last several day's trade, momentum was not confirming price advances, prices were already within important resistance areas, and a few hourly Demark buying exhaustion indicators were triggering (SPX and INDU in particular): all the right ingredients are in place for a trend change of some degree to take place. As our yesterday note suggested, whether that trend change will be merely the B wave of the ABC bounce we are expecting from last week's lows or is in fact the start of the next important leg lower cannot be determined at this stage. Prices seemed to drop impulsively from yesterday's highs suggesting that the next leg lower (again, either B of the ABC bounce or in fact the wave 2 lower for the SPX & INDU or wave 5 in the NDX) may have started from 1130.83 SPX, 10400 INDU, and 1447.95 NDX. Today's action will go a long way toward determining if those were in fact highs of some degree. How prices react at support will determine what degree of trend change may have occurred at yesterday's high.
S&P 500 (SPX)
We have been eyeing 1127-1130 as important resistance for the SPX and yesterday's prices labored into the 1130.83 point before being turned away impulsively. As we stated yesterday, 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. Either way, the ingredients are set (a completed wave count, Demark buying exhaustion indicators, and momentum non-confirmation of recent price highs) for a trend change of some degree. How prices move into lower support at 1104-1114 will be an important tell as to whether the entire ABC bounce is over or if just the A leg of that bounce is complete.
Given that the move away from the 1130.83 high "seems" impulsive (one more new low would be ideal but not entirely necessary), the analysis suggests a move to the 1104-1114 area in the SPX off of any bounce that stays below 1129.
We stated yesterday that we would await a clear 5 wave impulsive move down as that would most likely signal the start of a trend change of some degree: either one that takes the SPX back to 1104-1114 or indeed takes the SPX to entirely new lows. The late day impulsive move lower looks like just that trend change to us, and will be confirmed today with subsequent down action that declines below 1121.
The Nasdaq 100 (NDX)
Just like the SPX, for the NDX we have been waiting for a clear 5 wave impulsive move lower to signal a trend change of some degree. And given the ingredients that have been in place: a completed 5 wave move up, Demark exhaustion indicators (on 34 minute charts not hourly), and momentum non-confirmation of the price advances for the last 3 sessions, that could happen at any time. It seems like yesterday's move lower from the 1447.95 high was just that: impulsive.
Though we can't be clear right now whether this move lower will stop at the 1399-1417 support levels (or go to entirely new lows in wave 5), the risk/reward favors the downside in our opinion.
Dow Jones Industrials (INDU)
Same story on the INDU. All the ingredients have been in place for the last two sessions to signal an important trend change toward at least lower support in the 10150-10250 area. Like the SPX, it remains difficult to say whether the entire ABC bounce we have been waiting for is complete or if a move lower is simply the B wave portion of that ABC bounce. Prices seemingly impulsively declined from the 10400 area yesterday, suggesting that a trend change has occurred. If prices move under 10315 tomorrow, that would go a long way toward confirming that at least the B wave lower is underway if not a move to entirely new lows. We'll simply have to wait to see.
A bounce to 10390 may set the stage for the move to lower support. If an important trend change took place at 10400 yesterday, any bounce that happens tomorrow should not rise above that level. Again, support could be found for the INDU between 10150 and 10250, a 1% move lower or greater.
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