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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 bounce off of last week's lows (7/26 lows) remains, so far, choppy and overlapping, which helps reinforce the idea that what we are witnessing is a corrective bounce to relieve the oversold condition of prices on the hourly and daily charts. And that once this oversold condition is balanced, the major intermediate term trend (which we now believe is down from the Q1 peaks) will resume. Nothing has changed in that intermediate term view: we still expect that prices will likely trace out major new lows for the year eventually; the only question is time in our view. Last week's bounce from support can be interpreted in several acceptable ways in the very short term: some bearish, some bullish. The net of those interpretations however is that prices will probably continue to meander upward in a sluggish and overlapping fashion toward the next layer of important Fibonacci resistance slightly above the peaks from 7/21. Friday's basically flat price action was on substantially lower volume and positive breadth but highly diverged on short term momentum, indicating that a pullback to important supports may take prices down in the next 1-2 sessions before we can expect prices to move upward again toward those 7/21 peaks.

Those lower Fibonacci support levels hold the key to the near term trend: SPX 1087, NDX 1377, and INDU 10000. As long as prices remain above them, we can expect more of the same type of action as last week: choppy, overlapping upward movement in prices toward the next layer of stiff resistance at SPX 1116/20, NDX 1434/45, and INDU 10240/300. Should prices move impulsively below them at any time, that would signal that the oversold bounce has ended and that the larger bearish trend has re-asserted itself and new lows are likely forthcoming.

The analysis suggests a pullback in the next session or two may be likely: the key Fibonacci support levels we mentioned above must hold in order to conclude that the market is going to try to make a run toward the 7/21 peaks. A bounce higher from SPX 1090-1095, NDX 1380-1387, and INDU 10080/10030 with key support levels could be a good risk/reward for a move to beyond the 7/21 peaks in the next week or two. If those key support levels do not hold however, that would indicate that the intermediate term down trend had already resumed. As a general rule of thumb, corrective bounces like we are now experiencing are very difficult to trade, as they are, by definition, not trending markets.

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