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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.


Once again, there is very little to add to our previous notes: we have been looking for (1) a completed Elliott wave bounce from the 8/13 lows and (2) several of the topping indicators we also use to accompany that completed count. Friday's note suggested that the bounce from 8/13 was >95% complete. It is entirely possible that Friday's peak in all three indices makes it 100%.

Today's action should help us determine that. It is possible that the small selloff late Friday afternoon was the start of the next move down in the markets. A move below INDU 10173, SPX 1102, and NDX 1380 today would go a long way toward confirming that, and almost certainly a move below the 8/24 lows would do so. So today's session will tell us much: a strong case can be made that the bounce we were looking for all last week has completed at Friday's peaks. A break of the above levels would strongly suggest as much. Less probable is the case that prices move decidedly up from here, given all the divergences and the Demark trend exhaustion indicators we highlight below.

Our cited divergences remain: hourly momentum is now clearly diverging; breadth peaked on 8/18; ticks peaked on 8/20; daily Demark trend exhaustion signals have registered for all three indices; and hourly Demark trend exhaustion signals ("13's") have registered for all three as well. The only confirming technical indicator of the new price highs was volatility, the VXO. Otherwise, all the other topping indicators we look for to join a completed wave count are present.

Though we feel strongly about an imminent decline, we cannot say with equal confidence that Friday's/today's peak will be the final peak from the 8/13 lows. It remains possible (though low probability) that a several day decline and then another attempt at a new high (like late June) could take place. We will simply have to stay tightly focused on the technical indicators to determine if this is likely. If, however, our larger bearish technical analysis is correct, we could expect a fairly rapid decline from these levels that makes new annual lows and could potentially drop with strong momentum into the October time period. We'll assess the indicators accordingly to make sure we stay on the right side of the trend. This week should be very interesting indeed in helping to confirm or deny our larger bearish analysis.

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No positions in stocks mentioned.

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