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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.


I have been saying for the last several notes that the move up off of last week's low was corrective looking and choppy and would eventually be taken back given the dominant bearish trend we saw in place. However, I had originally believed that the daily and hourly oversold condition (both in sentiment gauges as well as the technical indicators we follow) could result in a multi-week 3-6% bounce to "relieve" that oversold condition. Indeed, I gave targets in the SPX 1116-1120, INDU 10200-10300, and NDX 1434-1445 areas to specify that very thought.

However, given the break of important supports in all three indices yesterday, the quite negative internals (breadth, up vs down volume, ticks, momentum) and the very clear "5" waves down from the 7/30 peak in the NDX, it is entirely possible that I was too optimistic about the timing and size of the expected oversold bounce I was looking for.

For now, the only observation I feel comfortable making based on the technical indicators is that the trend remains steadfastly down on the hourly charts. My current uneasiness with the short-term view here rests squarely on the fact that the daily chart, in terms of momentum and sentiment, remains steadfastly oversold. If my bearish interpretation of the Elliott wave count is correct, then the indices are "supposed" to be entering their most aggressive move down of the year: the "third of a third" wave. While the count itself supports the notion that a third of a third wave down may be starting, the underlying technicals do not (momentum, sentiment, etc.) Given this, I am reluctant to fully (read: high confidence) embrace the possibility of a major movement down.

Having said that, the hourly chart shows clear deterioration in prices here, specifically in the NDX which is ready for a corrective bounce to relieve the clean "5" waves down from the 7/30 peak. However, to guard against the potential that our very bearish "third of a third" wave down scenario is wrong, traders should keep a close eye on any upward movements. This will force you to be flexible in the face of any strength as several options (read: counts) are viable on the daily chart.

For now then, any bounces to the NDX 1370-1386 area could result in a movement downward unless levels continue to go up through 1390, at which time I would have to re-evaluate the analysis. The SPX and INDU remain less clear and are not showing a good technical risk/reward setup from current prices (they have not yet broken their 7/26 lows as the NDX and CCMP have).

No positions in stocks mentioned.

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