Advanced Technical Analysis
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.
Prices in the blue chips bounced off the Thursday lows in what appeared to be an internal 4th wave triangle of the impulse wave down that started on 4/27; the thrust out of the triangle was sharp and steep in what appears to be a 5th wave that has or is near ending the impulse move down from 4/27. The NDX traced out what looked to be an ending 5th wave triangle itself, with overlapping impulse waves down from its own Friday AM bounce.
These patterns, taken together and combined with the positive non-confirmations of the new price lows by indicators like momentum (MACD, ROC), advance/decline, tick, and up vs. down volume, all suggest that the impulse down that started on 4/27 (4/26 for the NDX) is due for some degree of bounce that could take it up to some important resistance targets. The size and impulsiveness of whatever bounce ensues could help us determine the intermediate term trend. The bullish 4th wave triangle interpretation we laid out Friday calls for prices to move up from around these levels in all three indices to prices just below their 4/26-4/27 highs. The bearish wave (III) down interpretation calls for only minor bounces from these levels that last a session or two before resuming this strong downtrend. Demark trend exhaustion signals are being given on 34 minutes and less charts (and the hourly chart for the NDX), so combined with the Elliott wave pattern and the non-confirmations of price lows above, argues for some degree of bounce here. We'll simply have to see what type of bounce is seen (degree, timing, form, etc.) in order to have a better handle on the intermediate term trend.
The indices all look like they need one more small (few points) up down sequence to "end" the 5th wave that started on Friday afternoon. If that assessment is wrong prices will head up straight from the opening bell and move through important resistance at SPX 1113/1117, INDU 10280/320, and NDX 1423/32. Trade thru the following levels may give reason for re-evaluation: SPX at 1100, NDX at 1380, and INDU at 10160; understand these levels are somewhat arbitrary as we have low confidence on the intermediate term bullish or bearish case. Tread carefully.
S&P 500 (SPX)
The SPX bounced in 4th wave triangle pattern (the alternate legs of the triangle had almost perfect 0.618 relationships to each other) and then thrust lower in what looks like the 5th wave of the impulse that started on 4/27. Internals were bad but better than Thursday's action, suggesting that the selling pressure is moderating. Indeed, a few non-confirmations were present on Friday's new lows.
The price movement out of triangles is usually swift and severe: Friday afternoon's action counts as just that. In addition, the impulse out of the triangle correction often travels a length equal to the largest width of the triangle itself. In this case, the SPX triangle was 11.2 points. The E leg of the 4th wave triangle ended Friday afternoon at 1116.85. That gives a target of roughly 1105.65, slightly below the 1107.3 close on Friday. So price too seems to argue that another small up down sequence that ends in the 1105.65 area could be a good place for some support to be found. Additionally, IF the larger intermediate term pattern is a bullish 4th wave triangle shaping from the March annual highs, the current C leg (see Friday's note) would be equal to 0.618 the A leg (the 3/5 to 3/24 down wave) at 1103.60. So there is a cluster of important potential supports in this region and when combined with the 34 minute Demarks, and the non-confirmations noted above, it seems reasonable to expect some degree of bounce to "work" off the selling pressure the market has absorbed last week.
The degree of bounce cannot be stated with any accuracy at this point. We will simply have to see what type of bounce we get (internals, impulsiveness, Demarks, form, etc.) in order to gain some more insight on the intermediate term (multi-week) trend. As you know, there are two possibilities, one bullish (4th wave triangle from the March highs) and the wave (III) down underway that calls for new lows beneath the 3/24 lows (bolstered by the SOX index but low probability owing to a series of Elliott patterns). Though the action beneath the simple prices (volumes, internals, momentum, etc.) certainly argues for the bearish case, the pattern still interprets it as low probability. Only a move below the 3/24 lows would allow us to become confident about the bearish case. But we certainly cannot be confident about the bullish 4th wave triangle interpretation either, so we'll focus on shorter time horizons.
An up-down sequence that ends in the 1103-1106 area could have a high probability of a material bounce. What degree of bottom forms, if one does, in this area cannot be stated with any confidence, so we'll simply have to play it by ear over the next few sessions.
The Nasdaq 100 (NDX)
The NDX has been falling for longer and further than the blue chips and is likely closer to a bottom, though it too looks like it needs perhaps one small up down sequence to new lows in the 1390 area (+/-) before this last 5th wave down that started Friday AM ends. Keep in mind that, if the bullish 4th wave triangle interpretation here is operative, the 1390 is the point at which the current C leg down from the 4/5 highs would be equal to the A leg down from the Jan highs to the 3/24 lows (see Friday's note). So again, there are a number of supports in this area as well as some larger degree non-confirmations of these new lows in prices (MACD/ROC, advance, decline, ticks, etc.). Hourly Demarks are very close (first few hours of trading today) to registering important trend exhaustion signals (indeed, Friday's lows did already for a few of the Demark indicators we use). A bounce then of some degree is a reasonable expectation.
What degree of bounce cannot, like the SPX, be stated with certainty. We'll simply have to play it by ear for the next few sessions. Our analysis suggests watching the 1390/95 area in the first hour or two of trading with a re-evaluation if we break 1380. If prices have already found a good bottom resistance at 1415 could be overcome impulsively.
Dow Jones Industrials (INDU)
Same comments here as the SPX, as the blue chips and SPX are tracking similarly. Importantly, the INDU did not make a new low for the week (as the SPX and NDX did) so it seems to be the more bullish of the three indices. This fact also is an intra-market positive divergence (for now) that argues for a low of some degree being close at hand. The INDU needs another up down sequence that ends in the 10200-10180 area. If prices move below these levels, the next important support is 10109 area where wave C (if the current down move from the 4/5 highs is wave C of the 4th wave triangle) would be equal to 0.618 wave A. Only a bounce now or a move to this lower support area will help us determine which of the bullish or bearish intermediate term trends is underway. The INDU is the more difficult of the three indices to play either long or short here, given the more mixed message it is displaying. The picture is unclear in this index at this time and until we can get more comfortable with the near term trend we remain cautious. Only a bounce through resistance at 10272 or a move below 10810 will help us become more confident.
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