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Advanced Technical Analysis

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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.

Summary:

Monday's new highs in all three indices remain unconfirmed on 34 minute charts or less while internals (advance/decline, ticks, up vs down volume, etc.) continue to weaken from March 29th internal high. The Elliott wave interpretation remains somewhat unclear on the longer term (week or longer) but is relatively clear on the short term: 5 waves up from the swing lows 2 weeks ago can be counted, cleanly suggesting that prices may be ready to decline for a correction of that move up at anytime. Demark indicators remain the same as well: they have already triggered hourly trend exhaustion signals last week and are set to do so again on hourly charts tomorrow. We would add that the daily charts for the INDU and the NDX will tick at a "9" tomorrow with respect to the TD Sequential indicators; the SPX will tick at an "8". Demark rules suggest that either an "8" or a "9" signal often results in a 1-4 day pullback in prices before the resumption of the trend (in this case up). So add that to the list of reasons that stocks are in a position for a pullback. All three of our indicators then are poised for a fall in prices that will at least partially correct the advance off the low in our view. For those considering entering the market from the long side, it could be a risky proposition in our view. The SPX and the NDX now have the most bullish Elliott wave prospects (though as we have stated these prospects remain unclear until we see what kind of pullback develops) while the INDU remains the most bearish. How this contradiction resolves itself we cannot say with confidence, so we will await, as yesterday, a 5 wave impulsive move down that signals the potential start of such a correction.


Highlights:


S&P 500 (SPX)

Prices closed on the high tick of the day yesterday but remain susceptible to a correction of some degree as we have been stating for several sessions now. Ticks and advance decline (even x-ing out bond-related issues) can be added to the ROC, RSI, and MACD (34 minute charts or smaller) indicators as reasons to be wary of aggressively adding exposure right here. That said, the persistence of the move up from last week's lows has surprised us and should be respected. At the least, this price strength adds considerable weight to the idea that this entire move up is indeed an impulsive one and that, once we get some sort of pullback, the most probable trade would be for new highs above the old swing high of 1163.

It remains possible (just not probable) that prices are still within a bearish wave 2 rebound but that interpretation will only gain weight with a sizable and quick decline below the 1130 area. To the degree that prices do pull back starting tomorrow (given that prices are in fact susceptible to such a pullback), possible support levels are initially in the 1130-1140 area and we'll simply have to see how prices move into that zone to determine the attractiveness positioning for eventual new highs. For those traders who are cautious, we still cannot confirm a trend change until we see a clean 5 wave impulsive move down on the intraday chart. When that happens, we'll highlight it here. For now we're waiting for clarity in the form of a clean 5 wave impulsive move to confirm a trend change lower or a clean ABC correction of this week- long uptrend in anticipation of a move to new highs well above 1163.


The Nasdaq 100 (NDX)


The NDX's new high, just like the SPX ticked right into the close though again without any of the usual momentum indicators that we prefer to see to confirm the trend. As a result, prices remain vulnerable to some sort of correction. More so than the SPX, the NDX's Elliott wave pattern and price strength strongly suggest that prices will make a new high above the 1559 high seen in January. A bearish interpretation remains possible for the NDX (counting 5 waves down from the 1159 high to the 1368 low) but it isn't as "clean" as interpreting that entire move as a large ABC, three-wave correction.

As a result, and because prices appear (like the SPX and the INDU) ripe for a correction, active traders that are cautious here (and have some positions on in case the low probability bearish Elliott interpretation comes to fruition) should watch for a clear 5 wave decline that can be seen on the intraday chart; we will highlight it here or publish an intra-day note if we can confirm one. A subsequent move to 1460-1480 should ensue that could hold prices if the larger bullish (new highs) scenario is playing out. For position traders, the next important trade will be to play once we see a clean ABC pullback in the NDX that holds at cited support zones, in anticipation of seeing new highs above 1559 in the NDX.


Dow Jones Industrials (INDU)


Same story on the INDU; new price highs are not being confirmed by momentum or internals but the strength of the price move (above the 61.8% retrace resistance of 10468) add weight to the bullish case that prices are heading to new highs. However, the Elliott wave pattern on the INDU from the 10753 high to the 10007 low is as clear as 5 waves can get, so the pattern itself remains the most bearish of all the indices. How this obvious dichotomy between the bullish NDX and the somewhat bullish SPX will resolve itself is impossible to say at this juncture. So for bearish positions we would continue to target the INDU given the still-bearish indicators that have lined up on that index.

Just like the SPX and NDX, a 5 wave decline on the intraday chart is needed to confirm a correction of some degree. If the larger pattern is indeed bearish, then the INDU will fall away through support of 10350 rather aggressively in our view. If the bullish scenario of new highs in playing out (as suggested by the SPX and NDX), then support in the 10300-10400 area should hold the decline. If we get a clear ABC decline into that area and the SPX and NDX are confirming the bullish case it would favor the longside. In the meantime, we would wait until and unless we see such an ABC decline into support. Otherwise, for cautious traders we would wait for a clean 5 wave intraday decline to confirm that some degree of trend change is underway.

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