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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:


All the indices gapped lower on the open yesterday and fell below important supports doing so with confirmation from short term momentum and negative breadth. Further, the bounce that resulted from the gap down was highly overlapping, also suggesting that the dominant trend remains down and that new swing lows beneath last Wednesday's lows will be seen shortly. Just how low beneath the 5/12 lows is not clear, though initial targets include SPX 1068-1072, INDU 9770ish, and NDX 1368ish. If the bearish wave (III) intermediate term interpretation is correct, then prices will not find support at those levels and will head toward the next layer of Fibonacci support in the SPX 1020-1030, INDU 9600-9650, and NDX 1346-1350 areas. Otherwise, if prices find support at the above higher levels and bounce, it will be difficult to make a confident judgment about the intermediate term trend: we'll simply have to see what type and size bounce develops from wherever prices find support and work off the short term oversold conditions. Where support is found, along with the type and size of the bounce that develops, will provide important technical information from which to make a better intermediate term judgment. The very short term pattern of prices from the 10 AM low is overlapped, suggesting that the current price action is corrective and will most likely be retraced shortly. The precise point from which prices will fail is not altogether clear at this stage but it appears that, for the SPX and INDU, slight new highs in the SPX 1090-1092 and INDU 9960-9980 area is a Fibonacci target for the correction.

For the NDX, prices seemed to be tracing out a triangle from the 10 AM lows, with the E wave up yet to complete from the D wave bottom at 3:35pm and 1378 price point. If a corrective triangle is in fact forming, prices should be drawn to 1386/88 before falling hard and making new lows. Only a move above 1392 would negate the triangle interpretation and instead suggest that slightly higher prices will be seen in this corrective move up: 1395-1400 are Fibonacci targets if a larger upward correction is in the cards. The important point is that the wave action from yesterday's bounce is corrective and should lead to new lows. Where prices find support will help us determine what intermediate term trend is operable.



Highlights:



S&P 500 (SPX)


The SPX gapped lower and moved below important support levels we identified in yesterday's piece. It did so with short term momentum and breadth confirmation. This action suggests that new swing lows beneath the 5/12 lows and toward the 1068-1072 area is the most probable scenario. Furthermore, the price action from the bounce that occurred at 10AM was highly overlapping, further buttressing our conclusion that new swing lows will be seen soon.

Hourly Demark trend exhaustion indicators are getting close to registering some degree of low soon. However, the wave count and the short term momentum confirmation of yesterday's gap lower are suggesting that at least the 1068-1074 area will be tested before we can anticipate some degree of bounce (if any). There are still a host of daily oversold readings and hourly non-confirmations of price action that suggest we're closer to some degree of bottom than top but the Elliott wave interpretation suggests at least another move to 1068-1072 is underway. If prices do not find support there, it would be suggestive that the bearish wave (III) down scenario is unfolding; the 1020-1030 area is the next Fibonacci target lower.

The bounce from the 10 AM lows looks like it may need one more swing higher toward the 1090-1092 area (+/-) before failing and moving to our 1068-1072 targets (overnight futures are currently up 4 points to 1090 so it is reasonable to expect the cash market to follow in today's session). Ideally we get this setup with short term momentum non-confirmations; that would seem to suggest downside with 1098 an area to re-evaluate. Otherwise if no new highs in the 1090-1092 area are seen, then prices could move impulsively toward the 1068-1072 area soon.

As we have been stating relentlessly about the intermediate term trend, either the very bearish wave (III) scenario is unfolding and prices will move decidedly toward the 1020-1030 area soon, or the bullish 4th wave double zig zag interpretation is about to end in the 1068-1072 area and then see prices move decidedly higher. If prices hold at the 1068-1072 area AND prices bounce impulsively taking out several layers of resistance, this bullish interpretation will gain much credence. Only subsequent price action will tell us which scenario is most probable.




The Nasdaq 100 (NDX)




The NDX gapped lower as well yesterday, moving impulsively through lower support levels, doing so with momentum and breadth confirmation and suggesting the next wave lower is underway. The bounce from 10 AM was highly overlapped too, suggesting that it is merely corrective and will most likely be retraced to the downside shortly.

Just how far a bounce can be expected is difficult to gauge at this time. Two scenarios present themselves: (1) either a triangle (labeled ABCDE) is forming from the 10 AM lows that needs an E wave to the 1386/88 area before falling impulsively to the 1368 3/24 lows or (2) a simple zig zag (labeled ABC) is unfolding that should move toward the 1395-1400 area before falling impulsively toward the 1368 support area (or lower if the very bearish wave (III) scenario is unfolding). The technical message however is similar: today's bounce from the intraday low and whatever bounce may occur today (overnight futures have surpassed the 1392 intraday high/resistance level) suggests weakness for a move to new lows based on the wave count, momentum indicators and Fibonacci targets with 1405 an area to re-evaluate.

Like the SPX, the NDX is closer to some degree of bottom than top, given the daily oversold readings and the hourly non-confirmations of the new price lows we are seeing here. The hourly Demark trend exhaustion indicators too are near ready to signal some degree of bounce is possible (though the overlap of prices for the last 2 weeks of trading have played some havoc with the hourly Demark indicators). If, from where, and how much of a bounce develops will help us determine just what the intermediate term trend is: the very bearish wave (iii) that calls for lows well below 1368 or the bullish 4th wave double zig zag that calls for prices to soon find support and move decisively higher. Only time and more price action will allow us clarity on this score.




Dow Jones Industrials (INDU)




As has been the case for the last several sessions, the INDU and the SPX are similar in their technical patterns. The gap lower took out important support, was confirmed by short term momentum and breadth, and signaled that the next impulse leg lower is underway toward at least 9770ish and possibly 9600-9650 if the bearish wave (III) is the operative multi-week trend.

The bounce from the 10 AM low was very corrective looking, suggesting that the move will likely be retraced. However, the very short term correction pattern does not look complete: another probe higher into the 9960-9980 area is probable before prices fall impulsively again toward lower targets. Since 10000 is such an important psychological target, allow for a move to extend up to that point but a down from the 9960-9980 area should keep an eye on the 10025 level to re-evaluate. To get a better handle on the intermediate term, we'll have to see where prices bounce from (if they do) and what type of move up occurs. Stay tuned.

No positions in stocks mentioned.

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