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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:


Yesterday saw prices open up and continue higher toward the upper resistances we identified in yesterday's AM note (SPX 1090-1092, INDU 9960-9980, and NDX 1395-1400) before falling away from those prices. It is not clear yet if yesterday's intraday highs marked the end of the corrective bounce we have been looking for from the 5/17 lows. If it did, prices could soon start the next leg down toward new swing lows by taking out SPX 1089, INDU 9955, and NDX 1390 on their way to the lower initial supports we have been keying on: SPX 1068-1072, INDU 9770-9824, and NDX 1368ish. If the corrective bounce is still underway, we may look for new highs above SPX 1094, INDU 9987, and NDX 1404 to be seen before the expected impulsive move lower begins. Only a move above SPX 1107, INDU 10100, and NDX 1420 would cause a re-evaluation of this view for another move toward lower supports.

For now, yesterday's intraday highs remain a key level as traders wait to see if either a new high is struck in today's session (above SPX 1094, INDU 9987, and NDX 1404) or if prices take out the SPX 1089, INDU 9955, and NDX 1390 levels, then prices are likely already in their next downward move toward lower supports. How prices react to these important levels will be the tell that folks should be watching. As we have been suggesting, what happens at lower supports (if in fact prices even get there) will tell us much about the intermediate term trend bullish or bearish.



Highlights:


S&P 500 (SPX)


The SPX opened higher and moved up 70 bps toward the resistance area we cited in yesterday's note: 1090-1092, before falling away from 1094 in what is possibly the start of an impulse wave down from the 1094.14 top. Breadth was positive and short term momentum confirmed the up open but did not confirm the 1094.14 top, which is supportive evidence that the 1094.14 price may have been the end of the ABC correction we have been looking for. Recall that we had been looking for an upward corrective move to unfold from the Monday lows before looking for the start of the next wave down to the initial 1068-1072 support area. At this stage, technical indicators suggest that an important top may have occurred at 1094.14 but a case can be made that another slight new high is needed before the next leg down is expected. It is not a high confidence call in the SPX at this juncture. We'll simply have to see if the SPX puts in a slight new high above 1094 or falls below 1088 to know how the last portions of this corrective advance are playing out.

The important point however, is that the move off the Monday lows looks corrective in nature, suggesting that the highest probability view is that eventual new swing lows in the SPX are seen toward the 1068-1072 area (and possibly lower if the very bearish wave (III) is operative).


The Nasdaq 100 (NDX)


The NDX had a gap opening higher that, after meeting important resistance just above our cited 1395-1400 resistance, turned down ending the day basically where prices opened up the AM trade. Breadth was better than the previous day but volume was weak. Short term momentum confirmed the AM gap higher but failed to confirm the intraday high at 1404.27. As with the SPX, it is unclear whether the 1404 high was the top of the corrective bounce we have been looking for off the 5/17 bottom. Overnight futures are currently higher than that 1404 level, so we'll have to see how the cash markets open up to determine just what the near term trend is.

Currently, the move off the 5/17 bottom does not count well as an impulse; any move above 1418 however, would be near term bullish insofar as that remains important resistance. If that move off the 5/17 bottom traces out in 5 waves, we'll have to respect the fact that an important bottom may have been struck. For now, if one looks at the pattern of prices since 5/3, it is a mess of overlapping wave structure (with a down bias) within an approximate 3% band of prices high to low. That pattern is also framed by a lower and higher parallel trend channel that has held prices within this 3% price band with remarkable consistency.

The interpretation of this pattern within the larger pattern off the 4/26 peak is open to a number of interpretations, many of them being guesswork at this stage and low confidence at best. About the best we can interpret is that prices are oversold on a daily basis and showing some non-confirmations on hourly charts, which suggests that prices are nearer some degree of bottom than they are a top (not advice). However, the wave pattern (as well as the Demark and momentum indicators we use) is not clear if another push lower to the 1368 area is needed or not. However, given the pattern in the INDU and the SPX, it is reasonable to expect that prices will complete the pattern off the 4/26 high with one more push lower. Only a clean and clear 5 wave move up from the 5/17 bottom would cause us to abandon this view. For now then we will continue to look at this channel to provide important upper resistance to turn prices down in what may be a final wave lower to complete the impulse wave off the 4/26 high. For reference, the upper part of that trend channel resides at 1413 and declines about 3 points per day. Should prices either exhibit a clean 5 wave move off the 5/17 lows and/or penetrate this upper resistance trend line meaningfully, we will have to come to the conclusion that prices may have struck a good bottom.

As we have made clear, wherever a bottom is struck (and the daily oversold conditions worked off), the subsequent bounce will help us determine just what the intermediate term trend is: the very bearish wave (iii) that calls from 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 to have a more confident view on this score.

At this stage, the 1404 intraday high remains a key while traders wait to see if another push higher toward that upper trend line resistance is necessary before prices turn back down. If that push higher is needed (i.e. if the cash market follows the overnight futures market on the open), then we will wait for a clean impulsive move down from whatever high is established. If the parallel channel lines from 5/3 are still operative, a turn down from the 1412 area would be an initial guess. So we'll watch prices if they approach that area.


Dow Jones Industrials (INDU)


Of all the indices, the INDU is the most overlapped and indeed the weakest price-wise. Yesterday's open was just slightly above the previous day's high and yesterday's intraday low overlapped with the previous day's highs as well, making for a series of overlapping prices. Overlapped prices indicate a corrective bounce that has a high probability for a complete retracement. Like the SPX and NDX, it is difficult to say with confidence whether new highs above yesterday's 9987 high are in the works before prices turn down again toward our lower support area of 9770-9824 area. We'll simply have to see how prices react today. The most important observation however, is the overlapped nature of the advance from the 5/17 lows.

In the INDU, we'll be focused on prices as they have either moved below the 9925 support level or have put in a new high in the 10000 area (+/- 10 points) and then shown a clean 5 wave move down that indicates that a trend change of some degree may have started. Waiting for some sort of confirmation that prices have indeed ended the correction off the 5/17 lows is the right strategy at this juncture. Only a move decidedly above 10080 (and in an impulsive 5 wave fashion) would cause us to abandon the idea that new swing lows could be seen shortly.
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