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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.


The most salient feature of Friday's action was that it was highly overlapping suggesting that the move up from the AM lows was still a corrective move and thus likely to be retraced in its entirety. Breadth and up vs. down volume were mixed though ticks (for the NYSE anyway) were a very high 1500 intraday. Thursday's note suggested that a correction of the 5/12 impulse wave to lower Fibonacci support was the most likely scenario. Friday's prices did in fact drop to lower Fibonacci support for all the indices in the AM but the subsequent rally was, as noted above, entirely overlapped. This suggests that it was either (1) a continuing correction of the 5/12 impulse wave higher or (2) the start of another impulse wave down toward new lows from a fully formed correction of the 5/12 impulse that ended with last Thursday's highs. At this point, the technicals suggest the latter scenario is less likely; more probable is that a correction of the 5/12 impulse wave higher is still ongoing that should, once lower support is found, register a high above last Thursday's high in another impulse wave. Upper important resistance for the indices remains: SPX 1103-1107, INDU 10125-10200, and NDX 1438-1457.

As I write this on Sunday night, both the NDX and SPX futures are lower but still above their last Wednesday (5/12) lows; only a move below last Wednesday's lows would suggest the next wave down was underway. Otherwise, we may see prices turn up from near SPX 1082/84, INDU 9900/9930, and NDX 1385/1393 to higher resistance in a larger degree 4th wave. Only a move below these levels would point to new lows in the SPX 1068/1070, INDU 9800-9830, and NDX 1368/1378 areas.


S&P 500 (SPX)

The SPX dropped to our cited support on Friday of 1085-1090 (1088.24) and bounced. Internals were mixed: advance/decline was neutral, up vs. down volume was the same, but intraday ticks were +1500, a remarkably high number. The bounce from the 1088 level however, was anything but impulsive; it was highly overlapped. We have written before how important it is for prices to move impulsively in order to have confidence in a long view. The overlap on Friday was not impulsive, suggesting that the entire move was an ongoing correction and would thus be retraced. Indeed, as I write, overnight futures have given back almost all of Friday's gain.

So what is the interpretation? As our Friday note suggested, it is possible (but not probable) that the entire ABC correction we were looking for off the 5/12 bottom was completed with Thursday's high. If so, then the current action is a likely 5th wave to lower SPX supports in the 1068-1074 area (initial support). A cleaner interpretation however calls for prices to correct the impulse wave up that started on 5/12 at some lower Fibonacci support (1084 to 1090) and then rally to upper resistance in the 1103-1107 range (and possibly higher if the bullish intermediate term trend is playing out).

We are still waiting to see what type of bounce develops to get a better handle on the intermediate term: if a bounce takes SPX prices above 1107, then the bullish 4th wave double zig zag scenario may be unfolding. If prices do not pass 1107 or drop from this level below the 1068-1074 support area, the bearish wave (III) scenario looks as if it may deserve the benefit of the doubt.

The Nasdaq 100 (NDX)

The NDX dropped on Friday to just above the 61.8% support level at 1393 and then added 1.7% to the index at the intraday high. Ticks, advance/decline, and up/down volume were all mixed (neutral). Just like the SPX, the NDX moved up in an overlapping fashion, suggesting the move was corrective and would be retraced. Indeed, as I write this on Sunday night, the NDX futures have moved below this 61.8% support level and are at 1392.

Like the SPX, there are two choices of interpretation: either the next impulse wave down from Thursday's highs have started (and lower swing lows will soon be seen below 1378) or this move down is still correcting the impulse wave higher that started last Wednesday. If so, another impulse wave higher toward upper resistance in the 1438-1457 area. The technical evidence suggests that another impulse wave higher is the more likely scenario, so we'll look for a move higher if prices can find support in the 1386-1393 area (the 78.6% and 61.8% Fibonacci support areas respectively).

As we have been stating, the intermediate term trend cannot be determined with any degree of confidence at this stage. We'll need to see how prices bounce (if they bounce) from the lower support zone to have an idea if the bearish wave (III) scenario or the bullish 4th wave double zig zag is unfolding.

Dow Jones Industrials (INDU)

The INDU and the SPX are similar in their technical patterns. Friday's pattern was very much overlapped and suggestive of either a new impulsive wave down (more likely in the INDU than the SPX) or an ongoing correction of last Wednesday's impulse wave that will find support in the 9900-9926 area. If prices push below 9852, lower support in the 9800-9824 area may be touched, if not lower if the bearish wave (III) scenario is unfolding).

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