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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.

There is little new to say about our expectations; we are still waiting patiently for a counter-trend bounce that takes us higher into Fibonacci resistances for all the major indices. Since the lows on the 29th, the markets have indeed bounced but so far at least that bounce has not given us the confidence that we would expect to have by now that a meaningful 8-14 days bounce has begun. Why? Because the bounce been both inconsistent among the various indices (DOW new lows, others not) as well as not clearly impulsive enough on very short time frames.

What this means for our intermediate term analysis is nothing:our analysis suggests waiting for the counter-trend bounce up to higher Fibonacci resistances before a potentially aggressive move lower (not advice). What this lack of clarity means for the short term is significant: it is possible (at this point we would put the odds at 50/50) that indeed, a full "5" waves down from the March 7th peaks in all the major indices has not yet completed, and would do so with a few more probes lower for all the indices we are watching.

The NYSE index and the Russell 2000 both 'look' like they need one more new swing low in order to complete their respective "5th" waves down from their March peaks. To that we would add the fact that the semiconductor complex (SOX, SMH) also looks like it "needs" one more probe lower to do the same. We have found in our application of these models to each index that high beta sectors tend to be leading indicators of risk: selling them when risk avoidance is the trend (bearish) and buying them when risk taking is the theme (bullish).

The lower beta indices - OEX, PSX, DOW - tend to make peaks and troughs after these higher beta indices; not all the time but enough so that we should respect the probabilities that this is the case. At present then, we could well see the higher beta indices - the RTY, the SOX - make a probe at a new low (indeed, we would prefer to see the RTY and NYA do this as they 'need' another low to confirm the larger intermediate term bear trend), while the SPX, DOW and/or the OEX follows later.

In the end, just 'how' the indices find the low (or even if they already did at March 29th) is unimportant. Prices are in no man's land right here and as such we would not be aggressively shorting stocks or going aggressively long. Markets like this one over the last few sessions are designed to separate you from your capital. This is why the analysis suggests that with respect to the bearish view for the next multi-week / month leg down, patience is essential. Wait for the best risk/reward setup possible. Today's prices do not appear to offer that.

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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