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Advanced Technical Analysis

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Summary:

Thursday saw prices gap higher in all three indices but then trade down below the previous day's lows, closing below the previous day's close in the SPX and INDU (and thus registering a bearish outside down day) while the NDX managed to close slightly above the previous day's close. All-in, the correction that had started early last week in the market continued on Thursday and, as of the close, was difficult to determine if it had ended. Thursday's update suggested that INDU 10468, SPX 1138 and NDX 1476 were important support areas IF the market was undergoing a mere correction of the move up from the previous swing lows. On Thursday, the SPX and INDU violated these lows (the NDX did not) suggesting that prices are continuing in some degree of correction off the early week peaks. However, the price pattern with respect to Elliott wave analysis shows that - so far at least - this action is merely corrective against the dominant uptrend.

That could change today however: if the SPX breaks 1130 and the INDU breaks 10,350 then the bearish scenario of a very important top having formed several weeks ago becomes far more confident. The fact that the NDX has remained above 1475 support does not support this bearish view ("as goes the Nasdaq, so goes the Dow"). The NDX would have to break below 1450 to further bolster the bearish case. Otherwise, should prices break above SPX 1140 and 1145, INDU 10470 and 10515, and NDX 1496, then the bullish case for new highs above last week's highs becomes the preferred scenario. Monday should help clear up the near term view.


Highlights:

S&P 500 (SPX)

Thursday's gap higher and then lower close was a bearish outside down day, suggesting in the least that the correction that started early last week is still running its course. As we have stated repeatedly, the near term remains somewhat unclear based on our indicators. And because we are waiting to see what type of correction would result from the non-confirmations we were seeing last week in order to determine the larger multi-week trend, we have little to say about that degree as well. Much will depend on if prices break either above important resistance or below important support: above SPX 1140 but especially 1145 the bullish case of eventual new highs above 1163 becomes the call. Below SPX 1130 and the immediately bearish case (and quite possibly the longer term bearish case) becomes operative to at least 1110-1125 area based on the analysis.

Once again, the wave form that has been traced out over the last few sessions is complex and can be interpreted in several ways. Neither momentum measures nor Demark indicators are suggesting a cleanly oversold or overbought condition, so we will need to wait for further price evidence to form a better interpretation of the very near term.

As we have been saying all last week, we have been waiting for this correction to form to allow us to better "see" the intermediate term picture in the SPX, so that time frame too remains unclear. As a result, no confident view of possible trade is presenting itself just yet. Below 1130 is bearish to 1110-1125, above 1145 is bullish to perhaps 1155-1160 in the very near term. How prices act once these important levels are breached will tell us much about the intermediate term trend.


The Nasdaq 100 (NDX)

The NDX remains the most bullish of all the indices, which in itself is suggestive of the more bullish scenario for the entire market: "as goes the Nasdaq, so goes the Dow" is a saying that befitted much of the 90s and remains true to this day. Like the SPX and INDU, the NDX gapped higher and weakened as well but never came under the previous day's low of 1475, adding evidence to the bullish case. The wave form too remains highly overlapped on the NDX suggestive of a mere correction against the dominant trend up. That said, it could also conceivably be a more complex impulsive move down taking shape. Only more time and price action will allows us to be more confident in our assessment. If prices can hold 1475 and then move above 1495 impulsively, the bullish case of a move to the 1510-1525 area is operative.

That said, as long as the very near term correction remains unclear, so too will the intermediate term. And we'll simply have to see how prices respond to get a better call on the next few sessions.


Dow Jones Industrials (INDU)

Like the SPX, the INDU put in an outside down day which is bearish. It also could no hold 10468, also bearish. The wave form on Thursday could be a series of 1-2's starting but it could also be interpreted as overlapping and corrective. Only more price action today will help clear that up. If prices cannot hold 10393 (Thursday's low) then 10350 support comes into play. And if that support cannot hold, then the larger degree bearish scenario (of an important top having been registered at 10753) will become operative. But let's not get ahead of ourselves, as there would be plenty of opportunity to get on board should that scenario play out.

In the more near term, if prices today exceed 10500, then the bullish scenario becomes operative for a move to highs above 10570. Otherwise, a move down that breaks important support at 10390 will augur a more near term move to 10350 where the bigger test of this move will be had. The next few sessions should clear up both the very near term and, by extension, the intermediate term trend. In the meantime, no need to do much until we get a better sense from the very near term price action.

No positions in stocks mentioned.

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