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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.


Monday's and Tuesday's price action is still conforming to our ongoing educational analysis: (1) that the bounce off the 8/13 lows is a corrective bounce that could be entirely retraced with new annual lows in all three major indices and (2) that this bounce is not yet "complete" but soon will be. Monday we suggested that the bounce was "75%-85%" complete. Today we believe it's better than 90% complete and "needs" just one more new swing high in all three indices to meet the minimum requirements of a completed corrective, mean-reverting bounce.

The analysis suggests preliminary targets for the peak of this bounce at NDX 1388 +/-, SPX 1104 +/-, and INDU 10175 +/-. The most important observations to take away from the technical condition of the markets these past handful of sessions is the overlapped, struggling nature of the price advance. When important peaks and troughs overlap within a trend (up or down), that strongly suggests that trend is vulnerable to a reversal. When this observation is combined with the larger wave count and the other topping indicators that are setting up nicely, our confidence is high that the indices are set up to reverse soon and potentially restart the bear trend that has taken prices down from the Q1:04 peaks.

You'll recall that we stated we'd like to see, in addition to a "completed" wave count, some other bottoming indicators to gain confidence in a top analysis: hourly momentum, breadth, tick, and volatility divergences and hourly/daily Demark trend exhaustion signals. A move to slight new highs (and toward our ideal targets) in all three indices would likely create these divergences. As importantly, such a move would also register some important Demark trend exhaustion signals. Each major index is 1-3 days away from registering a daily Demark trend exhaustion signal as well as hourlies. And parenthetically, we might add that this bounce started on 8/13. A Fibonacci 13 calendar days later is Thursday, August 26th, and could mark a potential "time" turning point that coincides with the prices we identified above.

At this stage, we maintain our previous analysis of potential peaks in the ranges mentioned above, unless levels advance through SPX 1110, INDU 10225, and NDX 1398. 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. Simultaneously, a move above SPX 1110, INDU 10225, and NDX 1398 would cause us to step aside and reassess the more bullish-than-expected movement.

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