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Applied Complexity Analysis


Thx Scotto!


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.

Price action continues to confirm that a large degree impulsive decline is underway toward our lower targets. Momentum, breadth, volatility, down vs. up volume, total volume; all are confirming these new price lows. They are suggestive that a good bottom is not yet close at hand, despite the near epidemic of bottom-calling from the media.

Indeed, we can be confident that something truly 'different' is taking place: net down volume has reached its highest level since July 2002. Yes, things like Bollinger bands of volatility, put-call ratios, and AAII bull/bear ratios all point to some sort of counter-trend bounce soon. But the key word in that statement is 'counter-trend': our lower targets of DOW 9639, SPX 1092, and NDX 1350/1315 areas are all eventual targets that we look to achieve before we start thinking about covering up some short exposure for a week long + bounce (not advice).

For now then, just like patience was key in looking for the early April peaks, patience will be key in looking for a low. We find it frankly assuring to our bearish stance that so many folks are looking to play a bounce here soon; this is a perfectly consistent reaction given the persistence of the uptrend from March 2003 to March 2005. Linear econometric models are generally not able to identify that the bullish regime has very likely ended on March 7th and that a new bearish regime is afoot. We can expect some sort of 'reaction' at DOW 9967, SPX 1126, and NDX 1355 but again we do not believe a bounce at those levels will sustain itself; rather it should fail and move toward our lower targets in time (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.

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No positions in stocks mentioned.

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