Advanced Technical Analysis
Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.
Yesterday's gap opening was completely closed by the end of trading suggesting that the upward 4th wave correction that had been suggested has ended and that the next impulse wave down toward the lower Fibonacci projection levels we have been eyeing is most likely underway. Those levels are: SPX 1068/72, INDU 9770/9824, and NDX 1368ish. The bearish engulfing down day, combined with the close of the day's gap, suggests that the impulse wave off the 5/17 lows was a C wave of a 4th wave upward correction that started on 5/12. Though the weight of the technical evidence suggests that this move down off the intraday highs yesterday is the start of an impulse wave toward our lower supports, there is still a small chance that the "5" wave impulse move off the 5/17 lows was the start of a new, larger degree, impulse wave toward even higher levels. Only if prices find support immediately today at or around the closing levels of yesterday's action and then bounce impulsively would cause a dismissal of the bearish view for a new swing low.
For now then, we can expect somewhat choppy action toward lower cited supports. Looking to the charts we would re-evaluate at SPX 1102, INDU 10050, and NDX 1420. Keep in mind that the oversold readings on the daily charts and the momentum non confirmations of recent (and probable new) lows are still intact, suggesting that we are closer to a bottom than a top. What we are doing now is looking for what is most probably the last leg of the impulse wave down from the 4/27 highs. For now, we'll look lower to our cited supports and then try to determine if those important lower Fibonacci projections are going to hold or not. We will then be in a position to better determine the intermediate term trend options: bullish or bearish.
S&P 500 (SPX)
The SPX moved up strongly yesterday to 1106, 3 points above the previous swing high at 1103 (5/13) and turned down impulsively closing the gap from the open and ending down on the day, losing 1.6% from the intraday high to the closing low. This reversal strongly suggests that the 4th wave bounce we had been looking for the last few days has completed in an ABC flat pattern, with the A leg up from 5/12 to 5/13, the B leg from 5/13 to 5/17, and the C leg from 5/17 to yesterday's highs. The ABC flat pattern ended near the A peak (the A peak was 1103) and did so with stronger momentum and buying pressure. This is typical of the C leg of corrective waves up.
We have been eyeing SPX 1068-1072 as potentially important Fibonacci support for the ending pattern of the wave down from the 4/27 highs. Interestingly, the 1068 target is now "pointed to" by the 4th wave corrective high that (most likely) completed yesterday. One of the interesting Fibonacci relationships within impulse waves is that the distance traveled by wave 1 more often than not equals the distance traveled by wave 5 (note: wave 5 can also be 0.618 of wave 1 and 1.618 of wave 1). In the case of the SPX, the wave 1 impulse down from the 4/27 highs traveled 40 points (39.6 pts exactly) from 4/27 to 4/30. As wave 4 likely ended yesterday, wave 5 would equal wave 1 (again, a common relationship within impulse waves) at precisely 1066.32. Thus, the previous target of SPX 1068-1072 (which was based on this current wave down from 4/27 being equal to the wave down from March 5th to March 24th), now has another Fibonacci target in the same area. As a result, there is a cluster of potential support in the 1066-1074 area so that is where we will look for a potential bottom.
We say "potential" because the intermediate term trend - whether it is the bullish 4th wave double zig zag or the bearish wave (III) that is playing out from the March highs, cannot yet be determined. If that cluster of important support in the 1068-1074 area does not hold, then the likelihood that the bearish wave (III) scenario is unfolding increases substantially. After 1066-1074, there is not another important Fibonacci support area for another 50 SPX points lower. So what happens at 1066-1074 is important for several reasons. If the 1066-1074 area holds, we'll have to see what type and what size bounce develops from there to determine the intermediate term trend.
Prices closed yesterday at the low tick of the day and with short term stochastics extremely oversold. So waiting for a bounce that takes an ABC form could be a better alternative for a move toward our lower targets (not advice). If our bearish interpretation that wave 5 down has begun is correct, SPX prices should not exceed 1100 in any meaningful way. So watch the 1102 level.
The Nasdaq 100 (NDX)
Like the SPX, the NDX gapped higher, gaining 2.1% in the first hour of trading. From the 1427 high, prices collapsed and closed the opening gap, closing lower by a point on the day. This pattern suggests, as our intraday note yesterday said, that the C wave of an ABC upward correction has ended and that a new impulse wave lower toward lower cited target of the 3/24 lows at 1368 is underway. Interestingly, if the 4th wave correction did indeed end yesterday at 1427, then the 5th wave that is now underway would be equal to the 1st wave down (the 1st wave being the 4/5 highs to the 4/21 lows) at 1353. So in addition to the 3/24 lows at 1368 being an important support target, 1353 is also an important target. So we will look for an important bottom of some degree to be made within that range. Hopefully, the NDX will approach this range while the SPX and INDU approach their important Fibonacci supports in this current 5th wave.
Whether or not prices see this area, go below it, and never even get that low remains to be seen, but they remain the most important Fibonacci targets below the current swing lows. As with the SPX, the intermediate term trend in the NDX is even more difficult to discern, so we must see where a good "5" wave move down from yesterday's high ends before becoming more confident about the degree of correction off the January top. For now we will allow for choppy action that approaches the lower supports we just cited.
In the short term, prices closed on their low tick of the day yesterday and it is possible that a bounce could materialize. Keep an eye on the 1420 as an area to re-evaluate.
Dow Jones Industrials (INDU)
The INDU pattern and the SPX pattern are virtually identical, so all the commentary for the SPX applies to the INDU as well. If the 4th wave correction ended at yesterday's high at 10093, then a lower target in the 9770-9824 area remains the target. As well, the currently evolving 5th wave down would be equal to the 1st wave (4/27 high to 4/29 low) at 9778. So again, like the SPX, there is another Fibonacci target in the previously cited support area of 9770-9824.
We will allow for some choppy price action as prices approach that lower target. In the INDU, the short term oversold nature of prices into yesterday's close suggests we could get an oversold bounce before heading lower and we'd be watching for a 3 wave, overlapping bounce before becoming cautious with the 10050 level an area to re-evaluate.
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