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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.


Prices continued higher yesterday closing higher for 6 days in a row. Given the slew of non-confirmations of new lows over the last two weeks that presented themselves and the daily oversold conditions that presented themselves, this 6th straight higher close is a meaningful achievement. Though the wave form from the 5/17 lows was not clearly impulsive, the subsequent strength and staying power of the advance is tipping the scales toward the bullish intermediate term interpretation that we had been following: that of a double zig-zag. A wave (III) down would just not produce 6 straight days of higher prices unless the 3rd wave was extending into a very large wave form, which remains improbable at this juncture. That prices moved above the mid-April lows, has now caused overlap with all parts of the latest large degree impulse wave down, causing the bearish wave (III) scenario to be low probability at this juncture.

However, our confidence level remains low until we see the move off the 5/17 lows experience some sort of correction in a meaningful way (several days and more than 100 basis points). That correction will need to remain shallow and hold above important Fibonacci supports in order to make us confident that the next large wave up toward new annual highs will be seen. For now, the unusual wave form of prices from the 5/17 lows (the overlap that we have been writing about, particularly in the INDU) makes us leery of taking a decisive stance for new highs right now. We'll simply have to be patient and await some sort of more meaningful correction to gain that confidence. In the meantime, the momentum divergence we noted in yesterday's AM piece continued in yesterday's session. Despite the new highs in the indices, momentum was not confirming the price advance, making us very skeptical of the long side (not advice). That momentum non confirmation, along with the overlap off the 5/17 lows, makes the technical call here low confidence. So we will stand aside and await a better risk/reward setup to present itself.


S&P 500 (SPX)

Prices gained 6 points yesterday on decent volume and good breadth. Short term momentum (21 minute charts and smaller) again did not confirm the price highs, which makes us especially leery of the long side here (a point we made yesterday - not meant as advice). Given the 6 straight days of advance, the lack of momentum confirmation, and the yesterday non-confirmation from ticks, we think prudence dictates waiting for a correction of some more meaningful size to develop to determine the staying power of this advance off the 5/17.

For the intermediate term bullish double zig zag correction to have merit, any correction will need to remain above important Fibonacci support and not overlap with previous highs (the 5/24 highs). Given the high level of put/call and the multiple oversold technical readings present on the daily chart over the last several weeks, the bullish intermediate term scenario is certainly gaining credence. To confirm that however, we will need to see the first real correction of the move off the 5/17 lows. We await such a correction to become more confident.

The Nasdaq 100 (NDX)

For the NDX, the momentum non-confirmations we noted yesterday continued; we can add tick and breadth non-confirmation of the new highs as well, which could make the long side a high risk proposition (not advice). Like the SPX, the NDX has now overlapped the entire impulse wave down from early April, making a bearish wave (III) interpretation very low probability. A number of bullish interpretations are possible in the NDX, including a triangle (with this up leg being D and one more down leg being E) or the double zig zag we have been suggesting. Either way, the 5/17 lows need to hold in order for the bullish interpretations to have merit.

We still believe, given the momentum, breadth, and tick non- confirmations that waiting for a more substantial decline to take prices back to Fibonacci support may turn out to be the better setup. Hopefully the next few sessions will provide the necessary evidence to make us more confident in the bullish intermediate term view. Stay tuned.

Dow Jones Industrials (INDU)

Just like the SPX, the INDU moved decisively higher, moving past important resistance on the way and making the bearish wave (III) interpretation low probability. At this point however, we think it is prudent to wait for a correction of some degree to gain more confidence in the bullish double zig zag interpretation that calls for eventual new annual highs. Just like the SPX, the INDU is showing important non-confirmations of price in momentum and ticks. So the risk of a jumping in here without waiting for Fibonacci support to prove itself is material. Stay tuned.

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