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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 continue to believe that we are in a mean-reverting bounce from the lows set on 8/13. In this regard, nothing has changed from our notes of last week. The only question remains: is the bounce over? The short answer, we believe, is: not quite yet. The most important observation I can make about the price action from the 8/13 lows is that there is clear overlap between the important peaks and troughs of this advance. This is strong internal evidence that this entire advance is indeed corrective and "against" the larger downtrend.

It can be "counted" in a number of acceptable and different ways to be sure, but the conclusion one reaches based on all of those most likely Elliott wave counts is that this is a corrective, mean-reverting rally that will likely fail and post lower annual lows. Having said that, there is short term evidence that this price advance has not yet exhausted itself. Specifically, though the volume on the advance since the 8/13 lows has been mediocre at best, breadth, ticks, and the volatility index (VXO) confirmed the price highs on Friday. Add to that the fact that the NDX lead the advance.

At an important peak, we would look to see breadth, ticks, and VXO all ideally diverge. Arguing for the Friday peak being the top of the corrective rally is the fact that hourly momentum (and shorter time frames as well) is diverging at these new price peaks. As well, for the SPX and INDU, we are seeing several Demark hourly trend exhaustion indicators register first thing this AM as well as on Friday's close. So the analysis, net/net, based on these collective indicators is this: the corrective bounce off the 8/13 peaks does not yet look complete (it is probably 75%-85% of the way there however). Only a move below the lows set on 8/19 (SPX 1086, NDX 1345, and INDU 9890) would suggest that the important corrective peak was already registered. Otherwise, the analysis suggests prices in the indices could struggle this week toward the SPX 1106-1113, INDU 10170-10225, and NDX 1385-1410 areas. Should prices enter these zones, we'll look for the normal topping indicators we want to see: hourly momentum divergence, tick, breadth, and volatility divergence, hourly Demark trend exhaustion indicators, and a completed Elliott wave count.

In the meantime, only a move below the lows set on 8/19 would suggest the top is already in. Either way, we will be patient until the setup we are looking for presents itself. For now just sit back and wait; patience will likely be rewarded.

No positions in stocks mentioned.

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