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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.


Though I had changed my intermediate term (multi-week/multi-month) trend to bearish in the middle of July once important supports were broken, I believed that a daily and hourly oversold condition, combined with some good bottoming indicators, could result in a several week, several percent bounce to relieve that oversold condition from the 7/26 lows. Though we did indeed get a bounce from the 7/26 lows that was overlapped and corrective looking, I had assumed, incorrectly as it were, that the market needed more time and price to relieve the oversold condition of the charts, particularly the daily charts. I was wrong.

What this suggests is that the underlying trend is so bearish that it truncated what would normally be a several week several percent bounce into a relatively shallow 1 week, 2% bounce. There is no change to my intermediate term trend analysis: it remains highly likely that the peaks in all three markets in Q1:04 were important bear market peaks of major degree. What this interpretation implies is that the bear market from 2000-2002 has resumed and that a move below those 2002 lows will, in due course, be realized. Only a sustained bounce that started immediately and that surpassed important resistance at SPX 1087, INDU 10025, and NDX 1359 would derail this intermediate term bearish interpretation.

Because "gaps" (up or down) in charts usually take place in third waves, and Friday's move down was clearly a gap, the short term suggests that prices are still within a third wave down that, within the next few sessions could see a 4th wave, corrective bounce before again turning lower toward the next layer of Fibonacci support in the SPX 1041, INDU 9600-9650, and NDX 1300 area. A 4th wave bounce could take place this week, leading to a down turn in anticipation of the continuation of the very large degree 3rd wave down that seems to be in force from the late June peaks.

There remains a small probability, entirely unconfirmed given the weakness and terrible internals of last week's price action, that some sort of very large correction off the Q1:04 peaks is near some sort of completion and a great bounce is potentially near. But taking such a stand at this juncture, given the failure of important supports to hold, is risky business. If for some reason that alternate bullish view is correct, I will need to see substantial proof of it before embracing such a possibility. For now then, the next two best posibilities could come from an "internal" (that is internal to the wave (i) of wave III of 3) 4th wave bounce (perhaps this week) and then a wave IV bounce in the next several weeks. As the setups for these bounces become more clear, I will highlight it here. Patience is key, however.

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