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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.


We have been looking to see if an important top would form in the markets for the last several sessions, as a host of negative divergences have accumulated that suggest the upside trend is weakening, the wave form is near ending, and Demark trend exhaustion indicators are registering.

All of this technical evidence suggests that this move up from the mid May lows is likely nearing an important top. Adding to the technical view is the fact that yesterday's slight new swing highs in all three indices came with overlapping wave structure and yet more divergences in momentum, breadth and ticks, suggesting that prices are in even later stages of this advance off the mid May lows. The NDX pattern is much more clear than the SPX or INDU and it appears to be calling for a top at any point based on the analysis. Most importantly from an intermediate term trend standpoint is the fact that the NDX has now put in a very clear "5" off the 5/17 lows (the SPX and INDU are less clear on this point). What this means is that, once we see a correction of this impulse move up, we can expect another impulse up that takes prices potentially another 10%+ higher from whatever corrective low is formed in the NDX 1425-1450 area.

So the next good risk/reward could be a cautious setup from these higher levels for a potential bounce in the NDX from lower support levels. The SPX and INDU top is more elusive and as such, no clear picture presents itself until we can confirm some degree of trend change with a clean small degree "5" down in those indices. The same path that we identified yesterday based on the analysis in the NDX remains in effect today: a potential move lower from the 1490-1500 area with 1510 an area to re-evaluate. Waiting for a "5" wave impulse move down to suggest a trend change could represent a lower risk scenario. After all, the divergences in momentum we have been talking about have been present in the markets for the better part of the last 5 sessions; waiting for a trend change might be the right strategy in order to avoid fighting the tape.

No positions in stocks mentioned.

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