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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 action did little to clarify the technical picture: prices were mixed and internals were less stellar than the previous session but did not break down in any meaningful way. It is possible to count a completed impulse wave from the 5/25 lows to yesterday's highs but it is not a high confidence count. What was clear yesterday was the substantial lack of momentum confirmation of the new highs in the market. That and the fact that a completed "5" wave impulse move off the 5/25 lows could be seen make the long side here very risky. Indeed, the minor 5th wave that we believe ended at yesterday's highs was overlapped and, initially at least, took on a terminal 5th wave appearance. This would be highly bearish as a terminal 5th wave pattern would suggest that yesterday's peak was a 4th wave corrective peak. At this stage we cannot know if that is the case; we must wait to see if a deeper pullback does materialize (it must do so today) and if so, what lower support levels, if any, hold prices. If prices move much below the 50% retracement level on the SPX and INDU, that would create additional overlap with the 5/24 peaks in the INDU and SPX. Such overlap has, and would continue, to make us highly skeptical of the advance off the 5/17 lows. For now then, the bullish case rests on the market's ability to consolidate the impulse that may have ended at yesterday's peaks with a shallow pullback that stays above the 5/24 peaks and continue to move meaningfully higher. The bearish case must see prices fall very soon and overlap with SPX 1102 and INDU 10045 on their way to even lower prices.

The NDX remains the most bullish of the three indices but it too suffers from modest overlapping in the last handful of sessions. If NDX prices fall into the 1426 area, that would be yet more overlap and would make us even more skeptical about this index's bullish potential. For the NDX to remain bullish, it must consolidate the last two sessions' move with a shallow pullback that holds in the 1430-1440 area. Given the low visibility on either side, we are waiting for some clarity on the technical picture. If the bullish case is operative, we'll have plenty of time to get on board once the evidence presents a more compelling case. If the bearish case is operative, we'll know shortly with any price overlap from the 5/24 highs.


S&P 500 (SPX)

With a +1.90 pts session, little new technical evidence presented itself yesterday. Though we can see a 5 wave impulsive move off the 5/25 lows, we cannot state with certainty that it has ended the recent bounce. And as our yesterday note suggested, it remains guesswork at this stage deciding if a 4th wave correction off the 5/17 lows has completed or if those 5/17 lows were an important pivot point for the bullish scenario. Given the overlap (especially in the INDU but also in the SPX) in prices, we are highly skeptical of the bullish call; but the fact that prices have not been turned down impulsively yet from the current resistance levels makes us equally skeptical of the bearish call that a 4th wave correction has ended and prices are set to move to our lower target of 1066-1072. For now we'll simply have to see if a correction develops in today's or tomorrow's session and see how deep that correction takes prices to determine if the 5th wave down from 4/27 is underway or is a new impulse wave up started on 5/17.

Though it is low confidence at this juncture, yesterday's new high could have been a terminal 5th wave of the impulse that started on 5/25. Certainly the new highs were not confirmed by momentum measures, which could make long positions very risky at these levels. If in fact a terminal 5th wave took shape (in the form of an ending "diagonal" with overlapping moves up from the 10:30 lows yesterday), this interpretation would be very bearish. Ending 5th wave diagonals tend to complete the pattern of one larger degree, which in this case would be an end to the entire move off the 5/17 lows, which, in turn, would make the upward bounce from 5/17 a 4th wave bounce. We cannot know this for sure because prices have not moved down in an impulsive fashion yet. We can only know if prices today decline meaningfully below the 38.2% support level (1107) and then overlap with the 1102 price level. Such action would be potentially very bearish and would suggest that the bounce from 4/17 may have been just a 4th wave correction and that the elusive 5th wave toward 1066-1072 may be underway. We'll simply have to stay on the sidelines and see if prices move below 1107 and then 1102 to determine if this scenario is unfolding. Today, then, is an important session for the bulls and bears.

The Nasdaq 100 (NDX)

The NDX had a better day than the SPX but it too was a choppy session with lots of overlap. Like the SPX the late session highs were not confirmed by momentum and could have taken the form of a terminal 5th wave (and ending diagonal) of the impulse that started on 5/25. We cannot know for sure yet as we will need to see prices move impulsively down first below 1430 and then overlap with the 1426 area to gain more confidence in this call. For now then we remain on the sidelines until we see if yesterday's high was a top of minor degree or a more substantial degree. Only the depth of a correction, if one happens, will allow us to make that judgment. Stay tuned.

Dow Jones Industrials (INDU)

As before, the INDU remains the weakest of all of the indices. Yesterday's push to new sing highs was decidedly not confirmed by momentum and the advance to new highs was entirely overlapped, suggesting that a correction of some degree is in order. Like the SPX and the INDU, the 5th wave off the 5/25 lows could have been an ending diagonal, which is a terminal 5th wave that completes the pattern of one larger degree. In this case, if yesterday's slight new high was a terminal 5th wave, it would be completing the entire mover higher off the 5/17 lows and thus would signal that yesterday's high was a completed 4th wave correction.

Like the other indices, we cannot know that for sure: we must wait to see what type of correction takes shape, if any from these levels. With the INDU, overlap with the 5/24 highs will be much easier to accomplish, as prices need only drop 63 basis points in order to overlap with 10046. Such overlap would begin to bolster the bearish call for a 5th wave lower in the 9770-9824 region at least. Otherwise, if prices can remain above 10050 and consolidate the last two sessions gains and then move higher, the case for a bullish call for substantial new highs will gain credence. For now, this trading environment presents no clear setups via our indicators, so we will stand aside until we see prices break down or move decidedly (read: impulsively) higher.
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