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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.


Friday's action saw a new peak put in for the SPX while the INDU and NDX did not confirm that peak. Most importantly relative to the bearish peak we have been looking for, the price action on the way up for the SPX (as well as the NDX and INDU for that matter) is that it has been overlapped and corrective looking. This suggests that this SPX move off both its 9/9 and 9/15 lows is a terminal impulse that is ending a corrective bounce of larger degree.

In other words, despite the new peak in the SPX, the overlapping pattern strongly supports our view that prices remain very near an important peak and that once the bearish trend re-starts, we could expect substantial new lows in all three indices. It is not uncommon for certain of the indices to diverge at important peaks where one index goes to new highs while the other does not. This very thing took place in Q1:04 when the NDX peaked on January 20th, the INDU peaked on February 19th, and the SPX peaked on March 5th. It is entirely possible that we are seeing a miniature version of this very thing with the DOW peaking in a corrective bounce on September 7th, the NDX peaking on September 13th and the SPX peaking either Friday 9/17 or today 9/20.

On an hourly basis all the indices are exhibiting the important divergences we look for: momentum, ticks, breadth and volatility (which last bottomed on the 13th). Hourly Demark indicators (for all three indices) have registered as well as daily Demark trend exhaustion indicators for the SPX. So net/net, the overlapped action in the indices, the intra-market divergences (SPX new high but unconfirmed by INDU or NDX), the hourly divergences, the Demark indicators, and the almost entirely complete Elliott wave count strongly suggest that the certain indices may have already peaked (NDX and INDU) while the SPX may need a slight new high to do so. Either way, the next substantial, multi-week move in prices is likely to be down, even if the NDX and the INDU "need" new peaks in the 1443 and 10385 area respectively.

We think it's prudent to await a failure in both the SPX and NDX below the important Fibonacci supports that we have identified before analyzing the beginning of a downtrend. Specifically, a break below SPX 1120 and NDX 1410 would add considerable evidence to the idea that an important peak has formed. The INDU parameters remain solid: we are looking for it to head lower unless trade powers through 10350, at which time we would have to reassess our bearish analysis.

No positions in stocks mentioned.

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