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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 bounced on Monday but did so in an overlapping and corrective-looking fashion and in the least this clouds the outlook in the very near term: the overlapping structure suggests that a slight new low beneath last Friday's lows might be forthcoming. But the many positive divergences that accumulated Thursday and Friday last week did produce a bounce, and this bounce may be the start of a larger degree correction upward toward resistance at SPX 1122-1132, INDU 10340-10420, and NDX 1438-1462. Only trade above SPX 1118, INDU 10330, and NDX 1428 today that stays above those supports would indicate that the 5th wave down from the 4/27 highs has already completed. Otherwise, one more slight new low to SPX 1100-1105, INDU 10180-10220, and NDX 1390 (+/- 5 pts) would be more ideal technically. Keep an eye on the following levels to re-evaluate: SPX 1100, INDU 10180, and NDX 1380. Otherwise, if the 5th wave bottom has already been seen, trade should steadily move up toward the above resistance targets; we will attempt to identify if this is the case. How prices do that and the internals they produce on any bounce will help us determine if the intermediate term bullish 4th wave triangle interpretation is operative or the bearish wave (III) interpretation. This week should help us answer this question.


Prices bounced on Monday but did so in an overlapping and corrective-looking fashion; in the least this clouds the outlook in the very near term: the overlapping structure suggests that a slight new low beneath last Friday's lows might be forthcoming. But the many positive divergences that accumulated Thursday and Friday last week did produce a bounce. At this stage whether the 5 wave impulse down from 4/27 is over or has one more slight new low in store remains to be seen.

For its part, the NDX has formed a nice parallel trend channel from the 4/26 highs while the SPX and INDU seem to be tracing out a 4th wave correction (either a triangle or a regular flat) that started from last Thursday's lows. The most probable scenario calls for slight new lows to be reached in all three indices, completing the impulse off the last week highs. What bounce develops from there (if one in fact does) should tell us much about the intermediate term trend. Its form, size, and the internals it displays will aid our understanding of which of the intermediate term trends is operative: the bullish 4th wave triangle from the March highs or the bearish wave (III) down underway now below the 3/24 lows.

For now, trading this market is an exercise in frustration as the volatility of the 4th wave correction takes prices up and down. The current expectation in today's or possibly tomorrow's session is for new lows beneath last week's lows to complete the impulse move down from the 4/27 highs.

However, prices could already be in the anticipated correction upward. If prices move above yesterday's highs impulsively and find support above those highs in any of the indices, it could be argued that the 5th wave down from 4/27 has already completed and the expected larger degree bounce is underway toward higher Fibonacci resistance. Unless that happens, a new move beneath last week's lows is expected to complete this 5th wave and then lead to that expected bounce. Important potential support zones are SPX 1100-1105, INDU 10180-10220, and NDX 1390 (+/- 5 pts) for any new low. We will then try to identify a potential pivot point intraday if it presents itself. Conservative traders should await a clear 5 wave impulse move up to confirm the trend change. So far that remains elusive.

If prices already have bottomed in the 5th wave off the 4/27 high, important resistance is at SPX 1122-23, INDU 10340-10420, and NDX 1438-1462 and we'll expect a move up to those levels in the next several sessions. Given the volatility surrounding the Fed meeting and Friday's employment numbers, trading may be difficult and volatile, so tread carefully.

S&P 500 (SPX)

The SPX bounced yesterday, putting in an up 1% day on average volume and positive advance/decline. The minor non-confirmations that registered at Friday's low portended the bounce but the degree of the bounce and just what relation it bears to the impulse sequence down that started on 4/27 is difficult to discern at this juncture. Prices traced out a bounce yesterday indeed, but did so in a three-wave overlapping fashion, suggesting that the more probable interpretation of this price movement is that it is an internal 4th wave of the impulse sequence down that started on 4/27. This implies that a new low in the 1100-1105 area we cited yesterday is needed before a bounce of some larger degree presents itself. Less probable is that the lows on Thursday of last week was the 5th wave low with an irregular expanded flat correction already underway toward higher resistance in the 1122-1132 range.

The overlap in the last few sessions looks clear to us and suggest the higher probability interpretation is that an internal 4th wave correction is underway. Further, the Demark indicators would be better served with a new low, as they would register hourly trend exhaustion signals, which, with a down move of this degree, they tend to do. We cannot ignore the fact however that SPX prices closed down 4 out of 5 days last week and lost 3.4% in 4 days. Some sort of bounce was perhaps inevitable to restore balance, but the wave form and Demark indicators currently suggest another probe lower is needed to complete the impulse move off the 4/27 highs. Doing so in the 1100-1105 area would be ideal. Only a move up today that moves above 1118 (impulsively) and stays there would suggest this interpretation is wrong and that a 5th wave was registered at last Thursday's lows. For now, given this ambiguity, no clear picture presents itself unless we see a clean move to the 1100-1105 area with hourly Demark trend exhaustion indicators.

As we have stated, whatever bounce develops (or has already developed), its degree cannot be stated with any accuracy at this point. We will simply have to see it to understand how it fits into the intermediate term picture ((internals, impulsiveness, Demarks, form, etc.). 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.

The Nasdaq 100 (NDX)

The NDX put in an up 1% day as well but also did so in an overlapped fashion, suggesting that this bounce was but a 4th wave bounce of the impulse wave down that started on 4/26. The non confirmations on Friday's low played their part and, to the degree that new lows are seen beneath Friday's lows, positive non-confirmations will be ever large and augur for a better multi-day bounce than we just had yesterday.

One can see clear parallel trend channel lines on the NDX that have formed, with the channel defining the wave end points (1, 2, 3, and 4). Trend channels are also very helpful tools (along with Demarks) in discerning the completeness of an impulse wave. Oftentimes, the wave 2 and wave 4 apexes can be connected as can the apex of waves 1, 3 and/or 5 forming a parallel trend channel (see chart below). Hourly Demark trend exhaustion indicators registered at Friday's low so they need no longer register in the NDX complex for them to be useful, but prices do need to stay above 1391 (closing basis) for them to be valid.

If prices still need a new low for the NDX to complete the impulse from 4/26, a move to the 1390 (+/- 5 pts) area would be ideal risk/reward (with 1380 a level to re-evaluate) for a potential move to upper resistance at 1438-1462. As with the SPX, the NDX might already be in the expected bounce. If so, a move toward upper resistance at 1438-1460 is reasonable.

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 an up down sequence that ends in the 1390/95 area in the first hour or two of trading with 1380 reason for re-evaluation. If prices have already found a good bottom resistance at 1415 should be overcome impulsively based on the analysis.

Dow Jones Industrials (INDU)

Same comments here as the SPX. If prices have already formed the 5th wave low, then a move toward upper resistance at 10340-10420 is expected over the next several days. However, if the 5th wave needs another new low, it would be ideal to do so in the 10380-10180-10220 area.

Like both the NDX and SPX, what bounce develops and how far it carries will tell us much about the intermediate trend: bullish in a large 4th wave triangle or bearish in a wave (III) down.
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