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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 price action looks to have completed an internal 4th wave of the impulse move off the 5/20 lows. Combined with the multiple divergences (in momentum, breadth, and ticks) that have been accumulating as well as the hourly Demark trend exhaustion indicators that are near registering, this short term Elliott wave interpretation gains credibility, thus moving our confidence rating to medium from low. Fibonacci-derived 5th wave targets for the indices are slightly higher at SPX 1128/30, INDU 10275/300, and NDX 1476/1480; we will see if these resistance levels turn back prices in a more meaningful way. How long that correction lasts, where (if) it finds support at lower levels and the form it takes getting there (impulsive or corrective) will be important technical evidence that will help us determine just what degree of low was registered in mid May. For now, the ultra-bearish wave (III) down scenario is losing steam and the more bullish interpretation that calls for eventual new highs seems to be gaining credibility. We will only be able to confidently state which is operative once we see the size and form of the correction that takes place once upper targets are reached. For now then, the risk/reward may be indicating a move to the above cited resistance areas before a move back down to SPX 1102-1113, INDU 10045/133, and NDX 1424/1445 areas if not lower. We'll simply have to keep focused on the short term until we gather more technical evidence to clarify the picture.


S&P 500 (SPX)

Based on yesterday's action, we can more confidently state that the impulse wave from 5/20 is coming to an end (how to treat the 5 waves up and 5 waves down from 5/17 to 5/20 is a complication that we'll attempt to address later). With one more new high to the 1128/30 area, a completed "5" can be seen from the 5/20 lows that has good internal Fibonacci relationships and will likely have all the attendant technical confirmations of a 5th wave: divergences on momentum, breadth, and ticks, as well as potential hourly Demark trend exhaustion indicators. Once that 5th wave is completed, a correction could ensue that takes prices back to the 1102-1113 area if not lower.

As we have been writing for the last several sessions, the recent technical evidence does not allow us to determine a trend beyond the very near term. The manner and extent of whatever correction develops (if in fact one does) from that cited upper Fibonacci resistance will provide important evidence to help us understand the intermediate term trend. For now, the situation then seems to suggest waiting for prices to reach the 1128/30 area before resistance to try to point to an expected move to lower Fibonacci support in the 1102-1113 area at least, if not lower, if the bear trend decides to reassert itself.

The Nasdaq 100 (NDX)

The NDX too seems to have put in a 4th wave low yesterday and seems to be on its way to 1476/80 in a 5th wave. Like the SPX, all the requisite technical indicators suggest some degree of 5th wave could end in that upper Fibonacci resistance: momentum, breadth, ticks and hourly Demark trend exhaustion indicators have or will shortly register.

Like the SPX, we will simply have to keep our trades of the short term variety until we determine the intermediate term trend. The NDX is potentially the most bullish pattern of the three indices from its low on 5/17. What degree of correction (if one in fact does) develops from the upper Fibonacci resistance will tell us much about the competing interpretations for the NDX. For now though, this index is leaning toward the bullish interpretation. We must see the manner and extent of any subsequent decline in order to confirm it however.

If we enter the above mentioned resistance zone, caution may be warranted based on the analysis for a move to lower support in the 1424/1445 area at least, if not even lower.

Dow Jones Industrials (INDU)

Like the SPX, the INDU looks like it needs one more push to a new high in the 10275/10300 area to complete a 5 wave impulse move off the 5/20 lows. That will provide a clearer set-up for the INDU: as caution may be warranted in that area for a move to lower Fibonacci support in the 10045/10133 area, if not lower, depending on the intermediate term trend that is playing out. We cannot state with any real confidence (beyond the 5th wave top that we see approaching) what the intermediate term trend is. For the bears, the INDU appears to be the index of choice as it sports potentially the most bearish technical configuration. If prices do overlap with 10050 on any subsequent correction, that would be potentially bearish for the intermediate term trend. For now, we'll simply have to wait and see how prices react at that upper target of 10275-10300.

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