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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.


The markets bounced yesterday, with the NDX leading the way, though doing so on muted volume and with NYSE breadth not very convincing. There is no change to my view that a bounce of some degree is in order for the markets once we can identify a clean 5 wave structure down from the June peaks. The difficulty has been doing just that: ID'ing a clean 5 waves down from the June highs from which to begin looking for an uptrend.

In the SPX and INDU, the upward bounce pattern off the Monday lows remains corrective looking and, when viewed in conjunction with the price action from the 7/14 peaks, suggests the highest probability is for the SPX and the INDU to register one more new low before I can confidently state that a good bottom has been found. It is possible, despite being unattractive technically, that the SPX and INDU bottomed on Monday's low. If they did, they would have done so without either positive short term momentum divergences or any good hourly demark trend exhaustion indicators, a highly unusual technical condition.

For now, the SPX and INDU remains in "no man's land": a clean bottom cannot easily and confidently be identified, nor can a cleanly impulsive move up that exceeds the highs set on 7/15 of SPX 1115 and INDU 10236 be seen. I will need one or the other of those conditions to present themselves before I'm able to confidently analyze the near term. For now then, I will remain on the sidelines until we get one more new low OR the 7/15 highs are exceeded in an impulsive (5 wave) fashion.

For the NDX, the near term is even more complicated: the pattern off the Monday low can be counted as impulsive, some important resistances and trendlines have been exceeded on the upside (but not the 7/15 highs yet), and short term momentum has broken out. However, like the SPX and INDU, the NDX would count "best" with one more new low, while the Monday low did not have some of the more dependable bottom indicators we look for. So if it was a solid bottom put in on Monday in the NDX, it was unconventional to say the least. As a result, here too, I remain on the sidelines. Unless the NDX puts in a clean "5" wave move that exceeds the 1427 level (and the 1434 level as well), an uptrend is not necessarily imminent given the less-than-ideal setup that Monday's bottom registered.

The ostensibly positive news from Microsoft (MSFT:NASD) after the close may provide the spark needed to get above the 7/14 and 7/15 highs today. I will be patient on any NDX views, however, until a confirmation of a trend change upward has occurred with a move above the 7/15 high OR a move to slight new lows in the next 1-3 sessions. Initial targets for the expected bounce are SPX 1120, INDU 10225/275, and NDX 1440. Prices will need to exceed SPX 1130, INDU 10350, and NDX 1475/80 in order to favor the bullish intermediate term trend

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No positions in stocks mentioned.

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