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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 gapped lower at the open Friday and continued, in a halting fashion, lower till the end of the session. Breadth was negative and mostly confirming as were ticks; volume slowed, however, and short term momentum (<21 minute charts) was not confirming the move to new price lows in the indices, all three of which put in new swing lows beneath Thursday's momentum-driven down-all-day affair. The most important technical data to observe from Friday's sessions is that the NDX took out its May lows (the SPX and INDU have not), all but eliminating one of the bullish interpretations of the last few months' price action.

For that index, then, I am left with one last bullish interpretation that can only be valid if prices find a major low sometime very soon (this week) somewhere slightly below the March 1368 lows, and then start a march higher that has impulsive characteristics. This is the last valid bullish interpretation of the technical indicators for the NDX: should it fail as well, this index will then be in a confirmed major bear trend with the next set of major targets the March 2003 lows. The very short term however, remains as cloudy as Friday's note described. There can be no mistaking the fact that both hourly and daily oversold conditions (sentiment, momentum, Demarks, wave counts) exist that are rivaling or exceeding those of the March and May lows and that this oversold condition "needs" to be worked off in some sort of (at least) mean-reverting bounce. Not to be mistaken either is that the trend remains so obviously (too obviously?) down, and that all surprises in price action have been in the bearish direction rather than the bullish. This conundrum, an oversold condition aching to be relieved set against a downtrend that has yet to show meaningful signals that it is complete, keeps me on the sidelines.

The price action Friday shows that at least in the very short term, prices are struggling now to go down: price overlap took place among the minor peaks and troughs of Friday's action. This may be an important short term indicator that prices are ready to work off this oversold condition. An ideal scenario would be for prices to put in another new swing low in all three indices today beneath Friday's intraday low and then bounce impulsively above Thursday's highs, filling the gap left by Friday's lower open. This would be but the first necessary sign that some sort of mean-reverting rally is underway. I will publish an intraday note should this occur today. How far a bounce goes remains doubtful, though as I have been saying, the intermediate term bearish trend is now the most dominant. And I'll stick with that interpretation until the market proves otherwise. Recall that this intermediate term bearish interpretation calls for the 2003 and 2002 lows to be breached sooner rather than later, and the secular bear market that started in 2000 re-starting at the peak in 2004.

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