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Advanced Technical Analysis

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Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliot Wave and other technical indicators. It is offered as education and not intended as advice in any way.

Summary:

Prices declined to within about 20 basis points of the Fibonacci support levels we cited yesterday and bounced impulsively and substantially (2%+) off those levels toward previous 4th wave highs in the SPX and INDU. This decline and bounce in the SPX and INDU largely completes the 5th wave down that started on 5/5. It is not altogether clear if yesterday's lows also complete the impulse wave down that started on 4/27 in the SPX and INDU. If yesterday's lows did not complete the 4/27 impulse wave down, a multi-day overlapped correction upward to important resistance levels (SPX 1095/1107 and INDU 10050/10150) will take place before another decline below yesterday's lows completes the impulse move down that started on 4/27. If however, yesterday's lows completed the impulse wave down from 4/27, the current bounce should easily exceed the SPX 1107 and INDU 10228 levels. For now, we'll simply have to see how far a bounce carries to determine how important yesterday's low was. The subsequent bounce will help us differentiate between the bearish wave (III) scenario or the bullish double zig-zag correction with respect the intermediate term trend.

As for the NDX, it bounced hard too but, as we've been discussing, the massive amount of overlap over the last 8 sessions has made it remarkably difficult to asses the short term and intermediate term trend. It is possible but unattractive to conclude that an impulse wave down from April 5th highs has now completed. At this stage it's impossible to state confidently if that is the case. Like the SPX, we'll simply have to see how far this current bounce takes prices and what form they trace out in that bounce. As we noted in yesterday's research piece, how prices move out of the 7 session range that has defined the NDX may provide some real clues as to the intermediate term trend taking shape in the NDX. Yesterday's impulse up should correct to some phi support soon. Stay tuned.



Highlights:


S&P 500 (SPX)


The SPX declined to 1076.32 yesterday, near the 1074.40 Fibonacci projection we were looking for as a good support level. It's possible that the 1076 price was close enough, a conclusion made all the more reasonable given the very impulsive move off the lows that took place in the afternoon. Just how important a bottom was struck yesterday is somewhat open to interpretation. If yesterday's lows completed the impulse wave down from the 5/5 highs only, we can expect a 1-3 session bounce to end below the 1104 level before putting in a new low beneath 1076. If however, yesterday's low completed the larger degree impulse wave down that started on 4/27, then the 1104 area will be easily penetrated and prices should test the 1110 to 1120 area if not higher. At this stage the size and form of the bounce that started yesterday will tell us much about just what degree of bottom was struck at yesterday's lows.

The rapid move up yesterday has already reached the important 1095/97 resistance area, so we can expect a correction of this immediate impulse up that could take prices to perhaps the 1085/1090 area. We'll have to wait to see a correction start however before determining a clear picture. Stay tuned.



The Nasdaq 100 (NDX)



The NDX followed the PSX and INDU down to lower levels via an impulse wave yesterday and bounced hard from the 1378 level. Given the overlap in prices for the last week or so in this index, it has been difficult to come up with Fibonacci support and resistance levels from which to trade. Yesterday's bounce was highly impulsive suggesting that even under a bearish interpretation, it is reasonable to expect another impulsive wave of similar scope to play out once we see a correction of yesterday's bounce.

It is possible to "see" that yesterday's low was a completed 5th wave low from the April 5th highs in the tech complex. But for several reasons this conclusion is not high confidence. And given the large amount of overlap in prices over the last 8 sessions, the very near term trend is equally difficult to discern. The observations we made yesterday with regard to tech's outperformance remain: tech outperformance is decidedly not the type of price action one would expect if prices were on the verge of a major impulse wave down. If and how prices move out of the broad NDX 1390-1420 range that has held prices in the last two weeks will tell us much about the intermediate term trend in the NDX. But yesterday's impulsive bounce, along with the overlapped pattern, are suggesting the very bearish wave (III) down scenario is not high confidence.

Like the SPX, once we can identify a correction to phi support of yesterday's impulsive move up, we'll be better able to clarify the potential risk/reward parameters.



Dow Jones Industrials (INDU)



The INDU and the SPX are similar in their technical patterns. Important support was nearly hit and a hard bounce ensued. How far this bounce goes will tell us whether the 5th wave down from 4/27 is complete or not. If the impulse wave down from 4/27 needs another new low, INDU 10056-10150 should be important resistance before another impulse wave down is started. If the 4/27 impulse move was completed at yesterday's lows, prices should move easily above 10220. We'll have clarity once we can identify a Fibonacci correction of yesterday's impulsive move up. We'll highlight those levels here once we have them.

No positions in stocks mentioned.

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