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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.


Yesterday we thought that another slight new low was needed to complete a "5" wave impulse move down from the 4/13 highs: "The SPX's and the INDU's impulsive waves down from the AM gap higher do not yet "count" complete...lower prices today for both the SPX and INDU before a clean 5 waves down can be counted and some degree of bounce expected." Prices indeed did fall to a new low to complete that impulse down, and then prices rallied in an overlapping ABC fashion to the highs of the day and Fibonacci resistance for the SPX, INDU, and NDX. Prices then fell for the remainder of the day, posting new lows in the SPX but not in the INDU or NDX before rallying right into the closing bell. Overall, the price action yesterday added weight to the idea that lower prices will soon be registered but the late day bounce has delayed the onset of that call by some degree. It is possible to count a completed larger degree 5 waves down from the SPX 1150 high on 4/5 but it isn't ideal internally.

It is not yet possible to count the same in the INDU or the NDX, as they seemingly need another clean impulsive move lower that gets to 10220/275 and NDX 1453ish. Important resistance for that to happen is INDU 10400 and NDX 1488. We will continue to hold or establish new short positions below these levels for a move to INDU 10220/275 and NDX 1453ish. If the NDX and INDU do fall toward these levels, then the SPX new low today at 1122.15 is probably only wave i of the final 5 wave impulsive movement toward 1108-1115. If in fact the first impulsive wave down from the 4/5 highs is complete, important resistance for any larger degree ABC bounce that develops will be SPX 1133-1140, INDU 10415-10475, and NDX 1480-1491. For now however, the most probable call based on our indicators is for a fall to lower support levels before a bounce can be expected. Today's trade should confirm or deny this setup.


S&P 500 (SPX)

The SPX completed a 5 wave impulsive move down that started on Tuesday's high and then rallied in an ABC fashion to the 38.2% resistance level before falling again in the afternoon to a very slight new low (0.76 points slight). Prices rallied into the close after tagging this new low but it's not clear if that into-the-bell rally was impulsive (suggesting that a good bottom had been struck) or was corrective (suggesting that new lows well under 1122 are imminent. Today's session will help clear that up.

It is possible, strictly speaking, to count a 5 wave impulsive move down from the 4/5 highs to yesterday's PM low but it isn't very clean and doesn't have great Fibonacci internal symmetry. This makes it a low confidence call. There was no real momentum confirmation that it was a "good" bottom nor were there any hourly or 34 minute Demark exhaustion indicators that suggested a 5th wave bottom was struck either. As a result, we cannot conclusively state that yesterday's 1122.15 low was a 5th wave low from the 4/5 highs. Given the internals yesterday (3-1 negative breadth, and 70% down volume vs up volume) and the fact that none of our momentum or Demark indicators suggest this impulse move down is complete, we believe the more immediately bearish call for a new low beneath 1122 toward the 1108-1115 level holds more promise for a trade-able low. If this more bearish scenario is playing out, then the decline from yesterday's high to the PM low of 1122.15 was wave i of the final 5th wave down that started at 1132.52., with the remaining waves to unfold over the next several sessions.

Only a move cleanly above 1132 would suggest that yesterday's 1122 low was indeed the 5th wave bottom from the 4/5 highs. If that takes place then phi resistance for an expected ABC, multi-day bounce can be expected to hold the advance and turn prices back down in the 1133-1140 area. At this stage the SPX does not offer a compelling setup on either the short side or long until we confirm that yesterday's low was a 5th wave bottom (by a move above 1132) or that the 5th wave bottom is lower in the 1108-1115 area (by a move below the 1122.15 support point.

The Nasdaq 100 (NDX)

Like the SPX, the NDX completed a 5 wave impulsive move down from the Tuesday low by gapping lower in the AM to 1463. An ABC rebound took prices back to the 50% phi resistance point before prices fell again impulsively to 1466 at 3pm ET. A rally took prices up to the 1476 level right into the bell adding a bit of complexity to the very short term wave count.

Like the SPX, the late day rally makes the very near term a bit unclear insofar as a clean 5 waves down from the 4/5 1508 highs cannot be seen. As well, none of the momentum or Demark trend exhaustion indicators we use have suggested that the 1463 low struck on the open was likely a "good" bottom. Indeed, there remains an open gap at 1453 that we highlighted yesterday as an important potential support area.

Yesterday's gap open lower penetrated that gap by 6 of the 16 points of that gap. It is our experience that gaps rarely fill only a "part" of a gap. It's almost all or nothing. In this case then, given the clear lack of momentum or Demark or Elliott wave indicators that suggest that the 1463 AM low was a bottom, we must continue to give the edge to the bearish case that calls for that gap to be filled with prices declining to 1453-1448.

Dow Jones Industrials (INDU)

Just like the SPX, the INDU fell to new lows to complete a 5 wave impulse move from the Tuesday highs. The subsequent rally to the 38.2% resistance level in an ABC corrective fashion before falling away 'till about 3 pm ET and then rallying into the closing bell. Unlike the SPX the INDU did not make a new low in the afternoon below the opening gap low of 10323. As a result, it's very hard to "see" a clean 5 waves down from the 4/6 highs. And just like the SPX, there were none of the usual momentum confirmations nor any Demark trend exhaustion indicators signaling that this AM low was a bottom that would result in a multi-day bounce.

As a result, we must give the benefit of the doubt to the bearish call for more new lows down toward the 10220/275 area before any sort of real multi-day bounce can be expected that would complete the "first 5" down from the 4/6 highs. Only a move above 10415 would alter this bearish call to a more bullish one suggesting that the low struck in the afternoon at 10325 (a "truncated" 5th wave) was indeed the 5th ending wave of the first impulse down from the 4/6 highs. Otherwise, we still expect prices to move below 10323 toward lower support before this first 5 wave impulse move off the 4/6 highs can be considered complete.

If prices move above 10415 convincingly today then traders should stand aside until we get a better sense of the very near term wave pattern and Demark/momentum indicators. Important resistance if prices have indeed found a bottom at 10326 will be in the area of 10437-10464.

No positions in stocks mentioned.

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