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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.


Friday's inside day in prices did little to change the current technical view: the move off the 5/17 lows is impressive but we cannot state with confidence that the intermediate term bullish interpretation of the technical conditions is warranted. The highly bearish wave (III) interpretation, however, has lost much of its credibility with the advance off the 5/17 lows. What will help us become more confident about the intermediate term call is the extent of whatever correction takes place of the move off the 5/17 lows. For the last three sessions, divergences have been accumulating: momentum, breadth, and ticks have all been trending lower despite slightly higher prices from Wednesday to Friday last week. This makes the long view potentially especially risky at this juncture in our view (not advice). At this point then, patience will allow us to gain much needed insight into the nature of this move off the 5/17 lows: if the bullish intermediate term trend is in place, Fibonacci support will hold on the first real pullback and there may be a good risk/reward presented once the current indicators' negative divergences are worked off. If Fibonacci support does not hold (the levels of which we will identify once we can confidently determine that a correction is underway), then we will have to reassess the potential for a more bearish interpretation at that time. For now, observation from the sidelines should be the best alternative in our view.


S&P 500 (SPX)

Friday's inside day added little to our previous analysis other than the fact that yet more negative divergences accumulated as prices stayed within a narrow band a few points from the Thursday swing high. Friday's note stated: "Given the 6 straight days of advance, the lack of momentum confirmation, and yesterday's 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 lows." We maintain this view for now.

For the intermediate term bullish double zig-zag correction to have merit, whatever correction develops 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. Observation remains the best trading play at this stage in our view.

The Nasdaq 100 (NDX)

The NDX did put in a new swing high on Friday, but did so with even more negative divergences on momentum, breadth, and ticks, making the advance tenuous at best. Like the SPX, we think it's highly prudent to await some sort of correction (and given the above mentioned negative divergences that correction could come at anytime) to determine just how important that pivot off the 5/17 lows was. Whatever the intermediate term trend, 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, all of which need to hold the 5/17 lows in order to gain confidence in that assumption.

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 is likely the better setup. Hopefully the next few sessions will provide the necessary evidence to make us more confident in the intermediate term view.

Dow Jones Industrials (INDU)

Like the SPX, the INDU had an inside day, not making a new swing high but not declining either. Momentum and breadth and ticks continue to moderate despite the fact that prices have largely held up. For the INDU too then, we think awaiting a more serious correction to determine what intermediate term trend is playing out is the smart thing to do. The INDU remains the weakest of all the indices and if the bear's case is to have any merit, the INDU is the index which will confirm or deny it. For now, we await a more serious correction to see if lower Fibonacci support will hold or not.
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