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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.


Monday's price action helped to clear up the very near term: by exceeding the important resistance area of INDU 10470 and SPX 1140, the price action suggested that last week's action was corrective and that new highs (at least above SPX 1150 and INDU 10570) are very likely in the short term. The NDX pattern however did not exceed its important resistance area of 1476, suggesting it is tracing out a triangle 4th wave that should end with a move lower tomorrow that holds above 1480 and then thrust to new highs in the 1510-1525 area. There are a number of ways to "count" the overall price action from the 3/24 lows in the SPX and INDU; both bullish and bearish longer term. But by moving above these important resistance areas cited above, weight must be given to the larger bullish case that calls for eventual swing to new highs above 1163 SPX and INDU 10753. We don't have to make that call today, as it's still possible to "see" a bearish Elliott wave count off the 3/24 lows. But be aware that more price action above SPX 1150 and INDU 10570 adds weight to the intermediate term bullish case. Traders may be able to see support at SPX 1139-1142, INDU 10440-10475 and NDX 1480-1483 on a pullback. Initial near term targets if support is found there are: SPX 1155-1160, INDU 10600-10620, and NDX 1510-1520. Trade below SPX 1137, INDU 10430, and NDX 1475 would raise caution.


S&P 500 (SPX)

Monday's push above the important 1145 resistance suggests that last week's price action was merely corrective against the dominant upward trend. Though Monday's tick, advance/decline, and volume all were weak, prices pushed through that resistance point and more importantly left a wave structure of the last several sessions that was highly overlapping, again suggestive of a correction. With the impulsive move up from last Thursday's 1134 low, based on the analysis prices look to be headed higher toward the 1155-1160 area before we could expect another pullback and larger correction. Ideally, the "first 5" wave impulsive move from 1134 is near completion and would result in a slight pullback to the 1140-1143 area before resuming another impulsive move up.

While the very near term (next few sessions) has cleared up slightly, the intermediate term remains cloudy. To the degree that prices do move decidedly into the 1155-1160 area however, the intermediate term bullish case (the one that calls for new highs cleanly above 1163) would become the operative scenario. It is still possible to "see" a bearish Elliott wave pattern in the move from the 3/24 lows, but at this late stage such a scenario is getting stretched and is certainly not a high confidence call. We remain uncomfortable making any intermediate term calls at this stage but several more days of trade could help determine just how strong the probability of eventual new highs above 1163 is.

In the meantime, once the initial small degree impulsive wave from the 1134 Thursday bottom is complete, which could be today near the open, it could pave the way for a move toward the 1155-1160 SPX area. Should trade fall back toward support at the 1139-1143 area, good risk/reward would be presented based on the analysis.

The Nasdaq 100 (NDX)

The NDX was not as strong as either the SPX or INDU yesterday and the Elliott pattern it is tracing out seems to be taking the form of a triangle: a series of 5 (ABCDE) overlapping waves that become smaller and smaller with decreasing volatility (see charts below). If this is the case, then prices should drop in the final E wave today toward the 1480-1483 area and should not fall beneath 1478 and absolutely not 1475 if this interpretation is correct.

Triangles, in Elliott terms, are high confidence trades owing to the fact that it takes only a small number of points and time to determine if the triangle interpretation is wrong. In addition, the thrust from the triangle consolidation is often very quick and often travels the distance of the largest width of the triangle itself. For the NDX this is 33 points. So should our triangle interpretation be correct and prices find support in the 1480-1483 area, we could expect a move up toward the 1513-1516 area minimum and perhaps toward 1525 in a matter of only a few sessions.

Like the SPX, the very near term may have cleared up but the intermediate term remains a touch cloudy. If prices do thrust out of this triangle as we believe they could, that would add considerable weight toward the intermediate term bullish case that calls for prices to make a new high above 1559. But again, that call need not be made today. We will let the cumulative weight of the next several sessions prices add to our understanding of the intermediate term picture. For now, we could see for a move to 1513-1525 if prices find support in the 1480-1483 area - with 1475 key support.

Dow Jones Industrials (INDU)

Just like the INDU, prices exceeded important resistance at 10470 and thereby left last week's prices overlapping and therefore corrective. As a result the very near term action has cleared up and suggests a move at least above the recent swing high at 10570 toward initially the 10590-10620 area. Should prices complete the first small degree "5" up from last Thursday's lows today, they should ideally find support in the 10440-10475 area before starting a new impulsive move up toward 10590-10620.

Of all the indices, the INDU remains the one with the most bearish potential; we can "see" in Elliott terms, both a bullish case for new highs above 10753 and a bearish case that suggests that a slight new high above 10570 could then result in a violent move down in a third wave. We cannot be clear and confident on either of those calls at the moment so we must simply trade what we see in front of us with tight stops until the picture clears up in the intermediate term.

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