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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.


Based on the analysis, the SPX and INDU remain in the late stages of an upward correction that should see slight new highs soon (perhaps today) above SPX 1136.80 and INDU 10460 to complete an ABC correction off the 4/14 lows. This wave (ii) high could then move SPX and INDU prices below 1122 and 10320 respectively, perhaps substantially so. NYSE volume, ticks, and advance/decline added little valuable information to our current (bearish) technical read: yesterday's basically flat session was confirmed by most internal measures of market health. And the recent lows that were struck in the SPX and INDU on 4/14 were not confirmed as "good" trade-able bottoms by any of our indicators so we must continue to give the bearish case a wide berth until a clear move above SPX 1140 and INDU 10480 force us to consider the more bullish potential.

The NDX is much more difficult to read right now. Prices advanced through our 1465 resistance point but like the SPX, the NDX's internals (volume, advance/decline, ticks) did not confirm this 1.7% move up. If prices do move toward the 1478/79 area today and hold support in the 1460/67 area and then move to new highs in the next few sessions, we must give the bullish read of the 1440 low being a solid bottom credence. However, if prices do not move appreciably higher today and instead move lower through 1458 and then 1450, the bearish scenario will become operative that calls for a new low beneath 1416/21. Until we get a confirmed 5 full waves up from the 1440 low (bullish to new highs above 1508) or we see a breakdown in prices that takes the NDX below 1458/50 (bearish to new lows to 1416/21) it makes sense to wait and see how the action unfolds .


S&P 500 (SPX)

Monday's action did little to alter the bearish, corrective looking price action of the last several sessions. We had written that yesterday the most important technical observation we could make about the recent price action is how overlapping it is, and that overlapping price action suggests that the last several sessions have been corrective and therefore against the trend. Price only overlapped even more with previous sessions' action, suggesting that this likely correction is even more mature than we thought yesterday. Yesterday's price action came on a flat advance/decline line, on 1.2B shares in volume (vs 1.5B and 1.6B last Friday and Thursday respectively), and with basically flat ticks. All-in, a listless session on weak internals.

Given today's price action, we can probably eliminate one of the bearish ways to "label" the price action of the last few days. Because a new high above Friday's 1136.80 high is very likely (prices stopped at 1136.18 before turning down yesterday) in today's session, that will make the move up from the 4/15 lows a "5" wave move that, because of its strong overlap with the first and fourth waves of this up move off the 1120.75 low, suggests it is an ending impulse and therefore a "C" wave that is completing an expanded flat from the 4/14 lows.

What does this mean strategy-wise? The same trade scenario we were looking for yesterday remains operative: a new high above 1136.80 that stays below 1141 and is capped by the 1136-1139 area (and not confirmed by momentum measures and does have the attendant Demark trend exhaustion indicators) would set up for lower prices (with 1141 an area to re-evaluate that call).

There remains, of course, a smaller probability that the entire move off the 4/5 highs is a completed correction: none of our Demark, momentum, or internals indicators suggest that this is anything but a low probability interpretation, but it may still be so. Only a move impulsively above 1141 would start to suggest this is more probable.

We have been writing for some days now that the next few days' price action is important to shedding light on the intermediate term (multi-week) trend. If prices do reach a new high today above 1136.80 and turn down before breaching 1141 in any material way, that would add considerable weight to the bearish case for the intermediate trend. It would imply that the entire move down from the 4/5 highs was a wave i, the move off the 4/14 lows a wave ii, and the next move down a wave iii that could travel at least 45 points. This week will be key toward determining if this scenario is operative.

The Nasdaq 100 (NDX)

The NDX was much stronger than either the SPX or INDU yesterday and exceeded the 1465 resistance/stop point we had set before the open. It did this on a lower advance/decline numbers than last Thursday's action as well as lower volume on both Friday and Thursday of last week. As a result, today's 1.7% move up came on weak technicals.

The picture in the near term has become quite cloudy for a number of reasons: the low on 4/15 was not identified by any of our technical indicators as a good, trade-able bottom (and suggested that a new low beneath 1440 was likely); the subsequent move off that low has (so far at least) has traced out an ABC corrective form (again suggesting that the larger trend remains down); but the move above the 1465 resistance area suggests that our wave count calling for a slight new low beneath 1420 is invalid, so we need to reassess the pattern off the 1508 high.

There are a number of ways to "view" the NDX action from the 1508 highs. But we do have high confidence that the move up from the 3/24 lows was an ABC corrective pattern, suggesting that another ABC pattern that travels 70-85 (50%-61.8% of the 140 point move from 3/24 to 4/5). The pattern down from the 4/5 high traveled 68 points, or
49% of the 140 point 3/24- 4/5 move. However, as we stated above, neither the Elliott wave pattern nor the Demark or momentum indicators we use suggested that this move down from the 4/5 highs was complete. And to boot, both the SPX and INDU are nearing the end of important upward corrections of their own before they move lower. So you can see our current state of confusion about just what the NDX is "saying" here.

So what needs to happen to make us confidently bearish on the NDX? The move off the 1440 lows needs to remain a clean ABC, 3-wave form. Currently the A leg of that bounce can be seen from 1440-1459 on 4/16, the B-wave of that pattern from that same 1459 high to the AM low yesterday at 1448.20 and the wave C portion of that pattern completing basically at yesterday's close or on today's open. If, then, prices make only a slight new high above 1473 today or fall impulsively right from the open, and subsequently fall below 1458 (and then 1450), we can then become more confident that the bearish trend toward the 1416/21 NDX level is operative.

And what needs to happen to make us confidently bullish on the NDX? If prices today continue higher toward the 1478/79 area, that would make the "C" leg as we have labeled it in the paragraph above a 1.618 multiple of the "A" leg, which is a more frequent relationship within impulse waves than in corrective waves. Therefore, with prices that head toward 1478/79, our above bearish count of A-B-C would then become a 1-2-3 (of a full 1-2-3-4-5 larger degree impulse off the 1440 low). The "count" in this case would be as follows: with the 1st wave the 1440-1459 advance, the 2nd wave the 1459-1448 move lower, and the 3rd wave up the 1448-01478/79 leg. A 4th wave correction that held support at the 1460/67 area would then give way to one more impulse move up above 1478/79 to complete the larger degree impulse off the 1440 low. Much will rest, then, on the next few sessions in the NDX. And since the NDX oftentimes leads the SPX and INDU, a bullish resolution to the NDX will make us less confident in our bearish interpretation of the SPX and INDU.

Given our lack of conviction on the very near term price action, obviously we have even less confidence on the intermediate term trend. So we will simply await some more definitive price action to tell us which of the scenarios are playing out over the multi-week trend.

The environment is murky until we see either a decisive move below 1458 and 1450 without seeing a new high in the 1478/79 area. Only then will we have a potential for a move to 1416/21 or lower. As well, if a new impulsive uptrend has indeed started at the 1440 low on 4/16, then we must await confirmation of a clean larger degree full 5 waves up off that 1440 low, which could take place later this week. To see this happen, prices need to find a new high in the 1478/79 area then hold support in the 1460/67 area before moving to a new high above 1480. Only that will give us confidence that a move above 1508 is on the docket. Till then, we suggest a cautious view as we watch the NDX action as it unfolds.

Dow Jones Industrials (INDU)

The INDU technical pattern is the same as the SPX above. It may not happen, but here too it looks like a new high above 10460 toward the 10468/75 area is in the offing before a downtrend reasserts itself. Only a move above 10480 would cause us to abandon this bearish view.

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