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.
There is very little to add to Wednesday's note: we said then that "the bounce...is better than 90% complete and "needs" just one more new swing high [above the 8/24 peaks] in all three indices to meet the minimum requirements of a completed corrective, mean-reverting bounce." Thursday's action did just that, provided a new impulse wave up from the 8/24 lows that seems to be more than 95% complete. 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 educational analysis: hourly momentum, breadth, tick, and volatility divergences and hourly/daily Demark trend exhaustion signals. Hourly momentum is now clearly diverging; breadth has been declining for the last six sessions (it peaked on 8/18); ticks have diverged noticeably (ticks put in a peak for this bounce on 8/20); volatility (VXO) diverged on yesterday's new peaks; daily Demark trend exhaustion signals have registered for the SPX and INDU, with the NDX a mere 7 points from doing the same; and hourly Demark trend exhaustion signals ("13's") have registered for the SPX and INDU while the NDX will do so with one more new high.
All of those topping indicators, when combined with the completed, corrective-looking wave count off the 8/13 lows, strongly suggest this bounce is very near its end. Though it is possible that all three indices could "extend" this bounce and reach as high as the late July peaks, the topping indicators and the overall bearish wave form taking shape argue strongly that it could eventually fail and turn back down to new lows. The question is, of course, from what level. We remain strongly convinced that this bounce is in its very late stages and sets up the possibility for a move to new annual lows, if not an altogether far more bearish interpretation that suggests the renewal of the bear market that started in 2000 and ended in October 2002.
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