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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.


In yesterday's update note, we suggested that prices needed to correct in an internal 4th wave before we could expect a 5th wave low to be put in from the peaks on 8/2. Yesterday's session provided just that: an overlapping, corrective looking advance that likely ended a simple ABC zigzag at the close of trading. It is possible that prices could put in a slight new high this AM but if our count is correct, we believe that at least 90% of the 4th wave bounce is complete if not the entire thing.

We can then expect the possibility of prices for all three indices to move below the 8/6 lows (for the SPX and INDU) and the 8/9 lows (for the NDX and SOX) for the next 3-5 days. Specifically, assuming that yesterday's peaks were the top of the 4th wave correction, Fibonacci projections for the 5th wave low we are looking for are: SPX 1050-1053, INDU 9700-9750, and NDX 1295-1305. If those prices are achieved in the next several sessions and do so with the bottoming indicators we look for (momentum divergence, hourly Demark trend exhaustion indicators and a completed Elliott wave count), then we will then look for a healthy week-long bounce to take prices back to approximately the levels we are now trading in a wave (II) bounce (per the bearish intermediate term trend).

If the lower probability bullish interpretation of prices is operative, then the bounce we see from that 5th wave low could be very strong indeed and could push well past the current price levels. For now, we will keep trading time frames short and position trades accordingly (not advice) since the difference between the very bullish trend and very bearish trend will be so clear on a bounce from a 5th wave low.

For now we favor the analysis that suggests a 5th wave low that could be seen in the next week or so below the 8/6 and 8/9 lows. Only continued strength today that pushes past SPX 1087, INDU 10035, and NDX 1363 would confuse this near term 5th wave low view and force us to stand aside waiting for a more clear setup. The analysis suggests a possible decline in all three indices to around SPX 1050-53, INDU 9700-9750, and NDX 1295-1305, unless levels move upward through SPX 1087, INDU 10035, and NDX 1363, at which time we would need to re-evaluate.

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No positions in stocks mentioned.

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