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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.


There is very little additional commentary to add to Tuesday's note in which we stated that the bounce from the 8/13 lows in all three indices potentially could have or shortly would peak and turn back down in a bearish trend. Tuesday's peak in the SPX and INDU was not confirmed by the NDX, as per an "ideal" setup cited in the note. However, prices have not yet yielded and have basically chopped around in a more or less overlapping fashion for all three indices. There are two ways to view this: the sideways, overlapping action of the last few sessions (1) is an internal wave 2 correction that will fall almost immediately (today or Monday) and not put in a new peak or (2) is part of the terminal pattern of the corrective bounce off the 8/13 lows with targets at slightly higher Fibonacci resistances before the larger bearish trend could reassert itself. Both of these most probable interpretations still call for a resumption of the larger degree bearish trend from the Q1:04 peaks, the question is one of timing and from what price peak.

For now, we are not changing our intermediate term view: we think the risk / reward favors the downside for the SPX and INDU at these prices and perhaps at slight new highs with a move thru the following levels cause for re-evaluation of that view: NDX 1403, SPX 1132, and INDU 10450. If our larger bearish interpretation is correct, the upside / downside calculation is in this trade's favor, as new annual lows are expected. This larger bearish call will prove problematic however if prices move above cited stop levels in any meaningful way. Should they do so, they will come almost certainly with greater hourly divergences in momentum and breadth than currently exist, thus making the long side just as risky as the short side. Such action would force us to stand aside and await a clean setup one way or another.

It is important to note however that the technical set up for lower prices we identified on Tuesday remains in effect. Though we would like to see some "better" divergences in terms of breadth, ticks, and volatility, the momentum divergence remains compelling. As a result we still defer to the view expressed in Tuesday's note: favoring a move lower from current prices with appropriate stops for a move to new annual lows. We will stand aside if stops are taken out.

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No positions in stocks mentioned.

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