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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:


We have been looking for a potential bottom in the indices for the past two sessions: yesterday's price action may have filled out some of the more important bottoming indicators we were looking for: momentum divergences, Demark hourly trend exhaustion signals (in the first two hours of trading today), and a potentially completed Elliott wave pattern off the June highs in all three indices. Ticks, breadth, total volume, and up vs down volume have not positively diverged however, so our confidence in the call remains muted (we have lowered our confidence from "High" to "Medium"). We have been saying for some time now that what happens in the cited support zones of the markets (SPX 1103-1112, INDU 10100-10200, and NDX 1426-1444) will help us determine what intermediate term trend (multi-week) is taking shape. The choices are straightforward: (1) the bearish interpretation calls for the May lows to be taken out and for the price decline to accelerate markedly after a multi-day bounce that fails at slightly higher resistance or (2) the bullish interpretation that calls for prices to find support in the above cited supports ranges in a wave II correction of the May-June impulse wave up and then power to new annual highs above the 2004 highs. Since we cannot have high confidence just yet as to what intermediate term trend is taking shape (bullish to new annual highs or bearish below the May lows), we must alter our view as a result.

A move thru the 7/8 intraday highs would suggest a bottom has been registered but ideally we'll be looking for a bounce from one more new low in today's session for each of the indices. Only a move decidedly below SPX 1103, INDU 10075, and NDX 1410 suggesting further technical weakness would suggest a much weaker immediate term trend. A conservative view suggests waiting for a confirmed trend change via a small degree "5" wave move up from whatever low is registered in the next two sessions. We will attempt to highlight such a pattern intraday. No matter what the intermediate term trend, bullish or bearish, an oversold bounce could be likely in the indices in the next 1-3 sessions. How far the bounce goes will tell us much about just how important the June tops were in the markets. For the next week or two, traders should keep time frames short and stops tight on both the long and short side, allowing the market to tell us which of the scenarios (bullish or bearish) is likely to unfold in the coming months.

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No positions in stocks mentioned.

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