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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.


Price action in the SPX and INDU did little to clear up the very near term technical view; both indices put in a new swing high above the previous day's high right at the open and then faded for much of the rest of the day until 2pm when prices headed to just above the middle of the day's range. The resulting price action leaves a highly overlapping Elliott wave structure in place between a fairly narrow range for both indices. The price action into this consolidation was clearly impulsive down (the 4/13 price action) and we still cannot identify either a clear completed larger 5 waves down from the 4/5 highs. Nor are any of the "bottoms" found in the SPX 1122 and INDU 10320 area over the last few days being signaled as good trade-able bottoms by our Demark and momentum indicators. As a result, the benefit of the doubt should likely go to lower numbers in both of these indices.

The clearest Elliott wave interpretation of the last two trading days is a large "flat" correction for the 4th wave of the 5 wave structure that "looks" like it needs to resolve lower in the SPX 1111-1118 and INDU 10225-290 areas. The NDX was more impulsive and " clean" from an Elliott wave standpoint. The gap at 1453 that we had been looking for prices to close was in fact closed late in the afternoon. However, the Elliott wave pattern still does not count "complete"; it looks to us that it needs one more new low beneath 1449.40 to be considered complete. As well, none of the hourly or 34 minute momentum or Demark indicators we use to signal good bottoms were present at the 1449 low. We maintain our cautious view pending one more new low beneath 1449 and the presence of Demark trend exhaustion indicators and momentum non-confirmations that would signal a potential bounce.


S&P 500 (SPX)

The SPX did little to clear up the very near term technical view: we are in the late stages of what looks like an impulsive move down from the 4/5 highs that needs a clean smaller 5 wave impulsive move down from the 1132/34 area toward the 1111-1118 area to complete the entire move from the 4/5 highs. We're still targeting the 1111-1118 area for a possible support zone for that 5th wave we're looking for. The price action of the last two days, highly overlapping and taking an ABC (three-wave) form, suggests that this last two days has been the internal 4th wave of the entire impulse wave down from the 4/5 highs. If so, it should complete very soon (the wave 2 correction took 2.5 trading days to complete) and should result in a move to the support areas we cited.

This assessment will be wrong if prices move decisively above the 1135 area today and do so in an impulsive (5-wave) fashion. For now though, none of the bottoms registered in the last two trading days have shown themselves - via our Demark, momentum, and Elliott wave indicators - to be good bottoms. As a result, we must still respect the bearish call for prices to reach the 1111-1118 area before a bounce develops that works off the decline from 4/5 to now.

As a general rule of thumb the analysis argues against initiating short positions within wave 4 corrections unless the potential wave 5 could be large, the confidence in the trade is high, and the stop is very close by.

The Nasdaq 100 (NDX)

The NDX was cleaner today with respect to the indicators and the setup we have been looking for. Yesterday's note cited the high probability that the 1453 gap in the NDX would be closed. Today's price action did just that, closed that gap by a few points in what looks like a final 5th wave of the entire impulse move down from the 4/5 highs.

The 1449.40 low yesterday did not count "complete" from an Elliott wave standpoint, as it looks like it needs one more new low beneath 1449.40 in order to complete the larger impulse down from the 4/5 highs. The midday low was not confirmed either by momentum or by the Demark trend exhaustion indicators we use so we feel that a call for another new low is the right one to complete the larger degree Elliott wave pattern from the 4/5 highs. However, any move that exceeds 1470 will negate this call and will suggest that perhaps the 1449.40 low was the 5th wave low we are looking for. We doubt it, but by moving above that, we'll be forced to stand aside.

We'll hope to see momentum non-confirmations on any new low and perhaps some important Demark trend exhaustion indicators to boot.
Once we can identify a solid bottom has been struck, traders should wait for a confirmation of the trend change with a clean small degree 5 wave impulsive move up from that bottom that could take several days and work off the selling pressure that has developed from the 4/5 highs to the current lows. Since today is an options expiration day, volatility could be substantial in the AM, so please keep to your stops and be patient, especially ahead of a weekend.

Dow Jones Industrials (INDU)

The INDU pattern and technical profile is the same as the SPX: the action over the last two days has been highly overlapping and suggestive of a 4th wave consolidation within the larger impulse move down from the 4/5 highs. A clean 5 wave impulsive move down from whatever high develops today (or developed yesterday) will be necessary before we could be more confident that some sort of bottom has been struck.

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