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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.


The analysis in Monday's note, saying that the move off the 8/13 lows has been largely corrective looking and thus a counter-trend move that is highly prone to new annual lows once it has completed, remains. Prices have struggled upward in the SPX and INDU and have done so with clear divergences in momentum (hourly peaked on 9/7 for the INDU and 8/19 for the SPX), breadth (NYSE breadth peaked on 9/7), ticks (NYSE ticks peaked on 8/31). Meanwhile, the SPX and INDU Demark indicators on an hourly basis have registered trend exhaustion signals while a new high today in the SPX will produce a TD Combo daily "13" trend exhaustion signal on top of yesterday's daily "9" exhaustion signal.

All of these things, when taken in context of the Elliott wave pattern suggest that the peak that has eluded us could be very near with one more slight new high above the peak set on 9/13 for the SPX and INDU. Specifically, one can see a nearly complete minor "5" wave move off the afternoon lows from 9/13 in the SPX and INDU. One more new peak above SPX 1130 and INDU 10348 could complete that minor "5" waves up and thus potentially complete the larger pattern off the 8/3 lows.

We will look for this trade setup to take place today then. Should trade power past SPX 1136 and INDU 10450, such action would negate this near term bearish call and force us to stand aside. Only a move below SPX 1113 and INDU 10230 before a new high being registered would indicate a top was already formed. Otherwise, we will look for a possible new swing high today to form the peak from the 8/13 bounce.

The hourly momentum divergences present last week in the NDX have now been eliminated, as hourly momentum has not put in a new peak for the move off the 8/13 lows. That weakens the immediately bearish case. That said, hourly Demark indicators have recently and will soon register, NDX breadth peaked on 9/1 and is diverging nicely, and NDX ticks peaked on 9/2 and are now diverging nicely. The pattern off the 8/13 low for the NDX "points" to several Fibonacci targets in the 1430-1440 area, with the 1437-1439 area a near term potential resistance area. Much beyond the 1440 area points to the next Fibonacci resistance cluster at 1450 +/-. Despite the relatively less clear technical setup for an imminent peak in the NDX, the bulk of the evidence does suggest that some sort of important peak could register soon in the NDX.

However, because it is indeed less clear than the SPX and INDU, we think it is prudent that we await a clear "5" wave move down in the NDX that takes out important support at 1387 to confirm a meaningful trend change. If the larger bearish outlook is correct, there is enough downside to make waiting for such confirmation a smart trading choice, in our opinion (not advice).

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No positions in stocks mentioned.

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