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Applied Complexity Analysis



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.

The SPX and NDX have now reached into the target price and time ranges we laid out last week for the expected bounce: SPX 1190-1206, NDX 1495-1515 and 8-14 days from the lows on March 29th. Today is day 10 and yesterday's price peak at SPX 1191.88 and NDX 1499.71 are within those ranges. Further, both of those indices have put in the requisite "3" wave bounce from the March 29th lows. Interestingly, looking at the very short term time frame, the SPX has a target just slightly higher where waves A and C of the entire bounce off the March 29th lows would be equal (a common relationship among corrective waves): SPX 1194 (+/- 1 pt) would 'provide' several important Fibonacci relationships (in addition to the equality one I just described) and thus could well be an important bifurcation point for a sharp reversal.

The NDX is basically right at its wave equality point at NDX 1499, so for these two indices in particular we have most of the conditions that we were aiming for: prices within the targeted price and time Fibonacci resistance, momentum divergences, breadth divergences, and Fibonacci wave equality.

Hourly DeMark trend exhaustion indicators are registering for the SPX and NDX futures while the NDX, DOW and SPX cash markets could do so in the first three hours of trading today; again, another plus. What is not 'perfect' about the current setup for lower prices? Ticks and volatility are not diverging at these peaks. As well, the DOW seems to be lagging noticeably in the amount of retracement of the previous decline it has completed. The Dow has not yet put in a new peak above 10569 (the wave A peak from April 1st) and 10571 is the minimum bounce target we originally gave a week ago: we would have liked/expected a bounce higher into the resistance range we have been looking for: 10600-10800. When combined with the shallow bounces in the higher beta RTY and SOX indices, these conditions present a cross-current of potential conclusions.

As a result of the above, we believe two scenarios are most probable: (1) the immediately bearish scenario whereby the markets will today complete their counter-trend bounces and likely lead to the period of sustained, broad selling that we are looking for (not advice). In this scenario, the markets were simply too weak (due to broad selling pressure) to muster much of a bounce, the DOW plays catch-up in today's session by exceeding 10571, and ticks and volatility fail to confirm today's new peaks. Or (2) a more complex upward correction ensues whereby a decline takes place today to resolve the very short term divergences but that decline should stay above the March 29th lows..

That decline, finding support above the March 29th lows, then traces out another three wave upward bounce into next week and higher Fibonacci time and price resistances. Since we only have high confidence that some sort of decline is brewing shortly (either the scenario (1) decline or the scenario (2) decline), our analysis suggests positioning agressively for the decline. If it is scenario (1) the selling should be sustained and easily slice through the March 29th lows; if it is scenario (2) prices will look to bottom above March 29th lows and we'll look to cover our shorts and appropriately look to reload higher and later (not advice - just sharing my view based on our models).

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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