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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 reached our cited Fibonacci targets yesterday and did so with diverging momentum, breadth and ticks as well as with some important hourly Demark trend exhaustion indicators registering (or near registering). As well, a complete 5 waves up from (at least) the 5/20 lows can be seen with the 5th wave nearing important Fibonacci projection targets and doing so in a struggling, overlapping fashion. All of these are likely trademarks of an impending reversal of some degree, which makes us increase our confidence rating for this call to "high" this AM from yesterday's "medium". Just what the size of the correction that could unfold from near these levels remains to be seen; the extent and form of whatever correction unfolds will tell us much about just how important the lows reached on 5/17 (NDX) and 5/12 (SPX and INDU) were for the markets. If this entire bounce from mid May has been a corrective move, the decline should gather momentum and become increasingly impulsive over the next several sessions. If the mid May lows were 4th wave lows then they should not be breached and a simple and relatively shallow correction could unfold over the next few sessions.

By our estimation, another slight new high above yesterday's intraday highs should "complete" the 5th wave off the 5/20 lows and place prices squarely within previously cited important Fibonacci resistances of SPX 1128/30, INDU 10275/10300 and NDX 1476/80. If the bullish intermediate term interpretation is operative, prices should find support in the SPX 1103-1113, INDU 10050-10150, and NDX 1425-1445 areas. If a more bearish interpretation is afoot, prices could move much lower than those levels over the next week or two.


S&P 500 (SPX)

SPX prices continued their move up from Tuesday's 4th wave low toward our target of SPX 1028-1030, posting a high of 1128.10 intraday. All the technical indicators that we look at to confirm a trend is about to change are present: momentum, breadth and ticks are all not confirming the new price highs we've seen yesterday; hourly Demark trend exhaustion indicators are present (a "13" and an "8" registered at 2:30 yesterday); and the wave form from the 5/20 lows counts as a complete and "clean" 5 waves (with nice internal Fibonacci relationships. Given this, we have moved our confidence rating up a notch to high, from medium, to reflect the confluence of these indicators.

The last impulse wave up from Tuesday's lows still only counts as a "3" wave move, suggesting that it needs another slight new high above the intraday high yesterday of 1128.10. Any move above 1128.10 today would then complete the final 5th wave off the 5/20 lows, setting prices up to correct in some manner. 1103-1113 is a target support zone should this be only a shallow correction of an ongoing impulse wave. If a more bearish intermediate term trend is underway however, then a more serious decline below those levels should play out. At this stage we cannot be certain which is operative. Caution seems warranted from a slight new high above 1128.10 with stops at 1138 for a move to 1113-1103 at a minimum seems like a good risk/reward picture. Once we see the extent and form of any potential correction, we'll have a better handle on whether we can expect to see highs above 1130 soon.

The Nasdaq 100 (NDX)

The NDX too seems poised for a correction of some degree: it has seemingly traced out a completed "5" waves from 5/20 and has the same technical conditions that the SPX has: momentum, breadth, and tick non confirmation; hourly Demark trend exhaustion signals registered. As well, the move off the lows of Tuesday (which we suggested marked the 4th wave low) has been overlapped, suggesting that a terminal 5th wave impulse move up is taking shape. All of these technical indicators point to a possible correction unfolding in the NDX that could take prices back to 1425-1445 area if this correction is only part of a larger impulse wave up from the 5/17 lows. The 1425-1445 area should hold any correction if the 5/17 lows were a 4th wave low of intermediate (multi-week) degree.

The NDX then is the same positioning as the SPX. A slight new high above yesterday's intraday high of 1474.10 is needed to "complete" the final 5th wave off the 5/20 lows. So any slight new high above that point with a re-evaluation at 1488 could be a good risk/reward for a move to lower support at a minimum. If a more bearish interpretation is underway than we currently anticipate, those support levels will not hold and a test of the 5/17 lows may be the next order of business. For now however, the NDX "looks" the most bullish from a technical perspective so we'll simply have to see where support materializes in the NDX and what form the price action takes getting to that support, to understand the intermediate term trend better.

Dow Jones Industrials (INDU)

The INDU and the SPX are in the same pattern here. A slight new high above yesterday's intraday high of 10288.81 is needed to complete the 5th wave off the 5/20 lows. From there, prices could correct back to 10050-10150 even if the larger trend remains bullish and a 4th wave low of intermediate term degree was put in on 5/12. The view on the INDU then is to use caution at a slight new high above 10288 with re-evaluation at 10344 for a possible move to lower supports. As we have been writing, the INDU is the most "bearish" looking of the indices, so these cited supports need to hold in order for the more bullish interpretation of prices to gain footing.

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