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Advanced Technical Analysis



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.


Yesterday's down-up-down action in the markets looks like an ongoing correction of the impulse wave up that started at Wednesday's lows. You'll recall that that impulse wave was most likely the first (or "A") wave of a larger ABC correction higher. Yesterday's note suggested to watch for the B wave correction of Wednesday's A wave impulse move higher to complete at lower support levels. So far, that B wave correction of Wednesday's impulse move is still unfolding. Important Fibonacci supports are still lower at SPX 1085-1090, INDU 9925-9975, and NDX 1393-1403.

The last two days' pattern suggests that an irregular expanded flat correction (taking a three wave form) is unfolding, the A leg of which was the AM low, the B leg of which was the midday high and the C wave unfolding from the afternoon highs toward cited lower supports. The pattern is not "clean" (which is why it is labeled irregular) which means it is open to some interpretation. It is possible (but not high probability) that the entire large degree, multi-day ABC correction that we had been looking for ended at yesterday's highs, but that conclusion is unattractive for a number of reasons. Only a move below the above cited supports would cause us to conclude that the move off the Wednesday lows to yesterday's highs was the entirety of the ABC correction we were looking for. Otherwise, we'll expect the above support levels to hold in today's session and turn prices impulsively higher toward SPX 1105/1107, INDU 10150ish, and NDX 1435-1445 and possibly much higher if the bullish intermediate term scenario is unfolding. If we see a bounce from these levels, the extent and form it takes will tell us much about whether the very bearish (wave (III)) or very bullish (double zig zag wave 4) intermediate term (multi-week) trend is operative.


S&P 500 (SPX)

The SPX, like the rest of the market, put in a down-up-down day while putting in a new swing high off the lows from Wednesday. In yesterday's note we suggested that the impulse wave off the Wednesday lows would undergo some degree of correction before starting another impulse wave higher. Yesterday's action looks like an irregular expanded flat correction, the C leg of which started at the 1102.79 high and could find support in the 1085-1090 area.

However, because the expanded flat correction interpretation is somewhat irregular (and does not have ideal Fibonacci relationships internally), another interpretation of yesterday's price action is possible. It is that the entire larger degree ABC correction we were looking for off the Wednesday lows completed at yesterday's 1102.79 high. There are several reasons why this interpretation may be unattractive. How will we know if the entire ABC correction completed yesterday rather than needing one more impulse wave up to 1103-1107 (or higher)? If the 1085-1090 support area does not hold prices today, then it is possible that yesterday's high did in fact complete a full ABC zig zag 4th wave correction of the impulse that started on 4/27. If so, prices could move to new lows beneath 1076 over the next several sessions.

Otherwise, our irregular expanded flat correction interpretation will stand: prices should find good support in the 1085-1090 area and then bounce impulsively toward higher resistance levels, the first of which is in the 1103-1107 area. At that point we'll have to see how far and in what form the bounce takes prices in order to have a better handle on the intermediate term call. Above 1108 would be meaningful initial evidence that a double zig-zag correction off the March lows took place and that new highs are in store for the broader indices. If prices stall below 1108, then new swing lows are in store, the depth of which will determine if the very bearish wave (III) scenario is unfolding.

The Nasdaq 100 (NDX)

The NDX also had a down-up-down day in what looks like the same pattern: an irregular expanded flat correction of the impulse wave up that started on Wednesday. It is not a high confidence count for the same reasons that the SPX irregular expanded flat call is not: the lack of clean Fibonacci relationships within the pattern itself. That said, it remains the highest probability count of the alternatives. If it is correct, support should be found in today's session in the 1393-1403 area for a move to upper initial resistance targets of 1435-1445. How high prices go, if they indeed do that, will help us determine if the bullish double zig zag correction is operative or the bearish wave (III) interpretation. If prices do not hold the cited support zone, they will likely move lower through the 1385 level (the 0.786 support level) and likely post new lows beneath 1378. How low will help us, again, determine whether bearish wave (III) is operative or not.

Dow Jones Industrials (INDU)

The INDU and the SPX are similar in their technical patterns. An irregular expanded flat is the most likely interpretation. Prices should find support in the 9925-9975 area before starting the next impulsive leg higher. If these prices are taken out and the 9900 level is breached in any material way, then it is likely that yesterday's high was the end of the larger degree correction and that new lows beneath 9852 will be seen. How much lower cannot be stated at this time though we note our 9824 target from several days ago remains untouched; if prices take out that level on a move down then we will have greater confidence in the bearish wave (III) interpretation. Otherwise, if prices can hold the 9925/75 level, another impulsive move up toward the 10150 (+/- 25 pts) area is the next Fibonacci target.

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