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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.

Last week's price action has, at long last, helped confirm that the important bounce peak we have been looking for has now taken place: on the 21st for the SPX and NDX and on the 13th for the INDU (a nice intramarket divergence similar to the one that occurred in Q1:04). Readers should be well aware of the divergences, Demark indicators, and Elliot wave count we have been following that make this intermediate term bearish interpretation now a high confidence one.

Last Wednesday's impulsive (5 wave), high momentum decline on both increased volume and markedly bad internals (breadth, ticks, up vs down volume, etc.), when combined with the fact that important Fibonacci supports have given way (SPX 1120 and NDX 1410) strongly suggest that the re-emergence of the bear trend that we have been looking for in this report for the last two weeks has arrived.

Thursday's and Friday's price action, which was highly overlapped and thus corrective, suggests that an upward correction of Wednesday's impulsive decline is underway that could, but does not need to, get back to upper Fibonacci resistances in the SPX 1117-1123, NDX 1417-1427, and INDU 10100-10200 areas before starting the next impulsive decline toward the August lows at a minimum. Such a corrective bounce back to those resistances would suggest the beginning of a possible downturn as long as trade doesn't power through the peaks registered on 9/21. Those levels need to hold any bounce to help further confirm the idea that a very important peak was put in on the 21st. As long as they do, we could expect prices to gain momentum on the downside through the remainder of the year, first taking out the August lows and then possibly moving toward lower Fibonacci resistance in the INDU 9100-9200, SPX 990-1000, and NDX 1200 +/- in the next several months.

We will be sure to highlight important technical elements on the way that either add confidence to or subtract confidence from, this bearish analysis. For the NDX specifically, an overlap of the peaks from 8/27 (at 1393) would go a long way toward helping to confirm this larger bearish trend and conclusion. Coming under SPX 1094 would be a similarly bearish confirmation for the SPX (the INDU has already overlapped its important level, strongly suggesting both the NDX and the SPX will do so shortly).

If our larger bearish interpretation is correct, and the price action over the next 2 weeks confirms it, the markets could be well on their way both to new annual lows and to a test of the 2003 lows in due time, with the 2002 lows being violated thereafter.

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