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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.


Wednesday's impulsive looking decline and Thursday's overlapped, corrective looking rally in all three indices adds considerable weight to the idea that the peaks on 9/14, which were in our cited SPX and INDU resistance areas, were the end of the corrective bounce from the lows on 8/13. We have been highlighting the nice divergences and topping indicators for the past two weeks in all three indices so the conditions were ripe for a reversal. Whether that reversal started on 9/14 we cannot say with 100% confidence, but certainly the price action thus far is encouraging toward that conclusion.

We had stated in Wednesday's note that "only a move below SPX 1113 and INDU 10230 before a new high being registered would indicate a top may have already formed." That remains true today: a break of these important support levels, when coupled with the impulsive down-corrective up pattern from the 9/14 peaks, would then strongly suggest the 9/14 peaks were "failed fifths" in Elliott wave terms and that the bear market trend from the peaks in Q1:04 has reasserted itself and new annual lows were forthcoming in the next several months. In the meantime, we will want to wait for a break of these important Fibonacci support levels to help "confirm" the peaks are in.

You will recall that we have been patient in analyzing a near term bearish trend in the NDX, preferring to wait for a clean 5 wave move down that took out Fibonacci support: 1410 and 1399 should be taken out on the downside in an impulsive fashion before we have added confidence in the NDX. The last two days' action in the NDX, like the SPX and INDU, adds significant weight to the idea that the peaks on 9/14 were the end of the corrective bounce off the 8/13 lows for the NDX too. Given the larger degree bearish implications for the start of the next down leg in the markets generally and the NDX specifically, a downturn in the 1385-1410 area could still turn out to be the case since the NDX has lower targets at least in the 1200 area, more than 14% lower than 1385.

If our larger degree interpretation is correct, we can expect all three indices to make substantial new annual lows in the next several months that could cause investors to question the underpinnings of their extreme bullishness through 2003 and early 2004 as well as the health of the underlying economy.

No positions in stocks mentioned.

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