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Advanced Technical Analysis

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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.

Summary:


Though I remain of the view that the very near term (next 1-3 sessions) could provide the markets with at least a multi-day bounce to upper Fibonacci resistance, Friday's breakdown below key Fibonacci support in the NDX, coupled with the weakness in the SPX and INDU, are painting an increasingly bearish picture of the intermediate term trend.

Regular readers know that I have been saying for several weeks that a correction of the bearish divergences at June's high was forthcoming. At the time I said the nature and depth (to which Fibonacci support level) of the decline from those June highs would help me understand the major trend of the market: bearish toward new annual lows or bullish toward new annual highs. With the NDX Friday coming below its 78.6% support level (that is, a 78.6% retracement of the May-June bounce at 1399), the bearish call for the May 17th NDX lows to be taken out and for prices to accelerate lower through the rest of this year gains some credibility.To be sure the bearish interpretation is not a rock-solid case: only a decline below the 5/17 lows would confirm a major degree bear trend that could take prices eventually back to the 2003 lows and below. But by coming below the 78.6% support line, the bearish case gained some credibility on Friday in the NDX.

The SPX and INDU remain relatively stronger: though the SPX has ticked slightly below its 61.8% support level (at 1103), the INDU remains above its 61.8% support level at 10095. For now then, no matter what the larger degree trend is, I remain of the view that a turn of some degree is imminent in all three markets. The analysis from Friday's note remains valid for the SPX and INDU: an uptrend from SPX 1100-1102 can be expected unless prices first decline impulsively through SPX 1096. The same is true for the INDU: an uptrend in the INDU from the 10100/125 range can be expected unless a decline through 10050 takes place first.

The NDX's breakdown below my key Fibonacci support makes suggesting a bottom in this market difficult at this juncture, so I will key off the SPX and INDU for now. Having said that, the NDX looks like it needs one more up-down sequence (as does the SPX and INDU for that matter) in order to complete its larger pattern off the June highs. But because the very near term pattern remains cloudier than the SPX/INDU, we should key off the SPX index for signs of a potential trend change and not the NDX.

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No positions in stocks mentioned.

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