Editor's Note: The following analysis was offered this morning via Scott Reamer's technical service. We share the vibe on the 'Ville with educational intents and is not intended as advice. For more information regarding Scott's unique approach, please click here.
Friday produced diverged new peaks in the NDX, OEX, and Nasdaq Composite but no new peaks in the SPX, DOW, NYA, RTY or SML indices; as well, the Nasdaq volatility index made a new annual low while the OEX volatility index did not, thereby producing a fractured market in price and volatility terms.
We continue to believe the probabilities for a meaningful peak are 'densest' in the next few days and within 50-75 bps of current peaks. The strong rally in the NDX is the single largest sticking point to the confidence we have in the intermediate term bearish case for all the other major indices.
Of the 8 major indices that we follow, our models remain solidly bearish for 6 of them, with the NDX and Nasdaq Composite the only indices that are presently open to competing bullish or bearish interpretations. It is unfathomable that the NDX would be able to continue to significantly rise in the face of what we believe will likely be meaningful bearish pressure on the other 6 indices in the next few weeks.
That said, since the NDX remains so unclear we cannot adequately identify a good setup (either bullish or bearish analysis) owing to these contradictions. That is partly why we will continue to focus on the other indices where the fractal pattern and Fibonacci relationships (as well as some of our other indicators) engender a higher confidence view. Specifically, the DOW, NYA, and SML indices have the cleanest fractal pattern; each 'should' peak in the next handful of points and next few sessions or else some other trend is underway than the immediately bearish one we are recurrently following.
If the degree of the peak that is being formed is indeed as large as we think, there is no need to aggressively follow the bearish interpretation yet until we get the best possible parameter setup: price & time bifurcation points, hourly divergences, and a completed fractal pattern. The next several sessions should be key.
NYSE breadth, ticks, momentum, and up vs. down volume are diverging at these new price peaks for the DOW, SPX, NYA, SML, RTY, etc. (OEX volatility is confirming however). Last week we said the first few days of this week (ideally 24th-26th) and SPX 1198 and DOW 10553 were targets. And as long as we entered those bifurcation points in time and price with a completed fractal pattern, some demarks (hourly which we are getting in many indices), and some divergences (4 out of 5), we suggested a good risk/reward opportunity based on the bearish interpretation would present itself. At this stage those conditions have largely been met. We would look to position for weakness off a move above DOW 10527 and SPX 1194 today. For position traders (whose timeframe is measured in months) we would use DOW 10660 and SPX 1211 as levels to re-evaluate this analysis while using DOW 10575 and SPX 1204 based on the aggressive interpretation (time frame is measured in days). We still think it's prudent to remain patient on the NDX and waiting for an impulsive decline there to confirm the larger trend has turned with what we believe will be a turn down in the SPX, DOW, NYA, RTY, SML, and OEX indices.
We have high confidence in a decline of some degree soon; the question remains if that decline declines below DOW 10220 and SPX 1161 (and thus confirms the larger bear) or if the decline finds support in the DOW 10320-400 and SPX 1175-1185 areas (and then suggests a push to a slight new peak above current prices next week). The market is at a very important juncture here worldwide.
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