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 most important observation to make for each of the major indices is that the entire move off of last week's low has been choppy and overlapping: this is the very definition of "corrective". What this means is that whatever peak is struck - whether it was struck in the last few days or if it will be struck in the next week or so - will likely be a peak, as the price action is expected to eventually retrace all of the gains off the 7/26 bottom. The only question to ask then is if the peaks in the indices posted over the last two sessions are THE peak or simply a way station on the way toward slightly above the 7/21 peaks. There is no good answer to that question unfortunately as the patterns in all three markets are open to multiple interpretations. All we can do is watch key support levels on the upside or the downside and see if they hold or break.
Specifically, if the peaks struck in the SPX and INDU on 8/2 were THE peaks we have been anticipating, an accelerating, momentum-confirmed move below SPX 1085 and INDU 10000 would need to take place to have confidence that the major downtrend from June had resumed. For the NDX that level is the 1375/77 area. Any move that is accompanied by strong momentum below these important supports would argue for the bearish trend resuming itself and presents the possibility for materially lower prices soon. I do not believe that this is the most likely outcome however for a number of reasons.
First, the daily charts are just now starting to work off their oversold condition, and could take another 1-2 weeks to finish the job and become either neutral or overbought. As well, all three indices have broken through important Fibonacci resistances in the last few days, suggesting that the next set of important Fibonacci resistances are the targets: they remain slightly above the peaks from 7/21; specifically SPX 1116-1120, INDU 10235-10300, and NDX 1434-1445. For now then, I cannot confidently state that those upper targets will be reached nor can I state with any confidence that prices are going to melt down from here.
Supporting the very short term bullish view for a move to those upper levels is some slight momentum divergences that showed up on the indices yesterday. If prices do turn up from around the levels of yesterday's close, that would add significantly to the idea that those 7/21 peaks will be seen. Only if prices continue to break down today hard will I take the low probability stance that new lows beneath the 7/26 bottoms could be in the near future for the markets.
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