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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.

Wednesday's note said: "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".

The impulsive bounce from Tuesday's lows, combined with breadth, momentum, and tick confirmation suggest Tuesday's lows are the lows we have been waiting for and that those prices should act as the springboard from which we can expect to see a bounce that carries 8-14 days and 300-400 basis points depending on the index (with an outside shot at 17 days and 500 bps). Based on the behavior of counter-trend retracements since the 2000 peak, we think it is reasonable to expect a deep retracement of the 22 day 5%+ decline that we witnessed in March. And that means toward the top of our stated price and time range for technical weakness: SPX 1189/1205, DOW 10620/770; NDX 1494/1517 and 8-14 days from March 29th (April 6th- 12th). It is even possible that the upper limit of expected price/time resistance is seen: SPX 1215, NDX 1532, and DOW 10860 and April 15th. Counter-trend bounces, particularly wave 2's are notoriously difficult to analyze as they play out. So we will simply have to use our broad price and time guides above for now and get more granular as we see the bounce unfold. This is one of the reasons we think catching a lift to the upside is so difficult.

The conservative view to avoid taking such risk, encourages patience. The upcoming setup for lower prices should be the best, highest confidence risk/reward setup in more than a year. I am using the next several sessions to map out the stocks, indices, or instruments (stock, ETF, options, futures, etc.) to play. Given the relative weakness, I am looking for candidates in the small cap, technology, and financial sectors, expecting them to decline the most in the approaching decline (not advice). Right now, just a few days removed from the recent lows, wanting to press the downside is a natural desire. We would strongly encourage patience; markets progress and egress, so it is prudent to let the progress part have its day. When it is time to act on the short side, it will undoubtedly be more difficult emotionally, as prices are likely to be higher, bulls more plentiful and confident, and traditional market measures less clear. Stealing yourself now for that eventuality - looking for aggressive weakness once stocks get near the end of their counter-trend bounce - will likely pay dividends in late April and May (not advice).

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.

No positions in stocks mentioned.

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