Technicals

Dow May Lose Ground After Running Into Fibo Resistance

As is often the case in Elliott, the picture is becoming much clearer as the rally has matured and nears its end.  The advance from the March low is a complex W-X-Y (a-b-c-x-a-b-c) rally.  Notice the broadening formation since August.  Broadening patterns almost always signal tops (called ending diagonals in Elliott terminology).  Levels to watch for resistance are 10365 and 10495 (100% extension).

The Dow tested resistance at 10,326 the 50.0% Fibo retracement of the 14,198-6,543 decline, before giving back some of its gains.  The level may provide formidable resistance and leading to a retrace back toward support. 10,000 could be a level that holds as we see former congestion at the psychological level, but another test of the rising trendline can’t be ruled out.

The S&P is in a similar situation to the Dow.  The count from the March low is the same but the recent surge that propelled the Dow to a new high has yet to do the same for the S&P.  A broadening formation from the August low is evident here as well, which again does warn of a top.  A new high exposes 1110.30 (top of gap from October 2008 in December contract), then 1134 and 1159 (100% extension) in the index.

The S&P 500 failed to break above 1,100 as the psychological level may become formidable resistance. A move above may not get much further with the 50.0% Fibo level at 1,120 as the next barrier. The broader index appears poised for a retrace backed toward trendline support near 1,060.

The NASDAQ pattern is the same as the S&P pattern in that the index has yet to make a new high.  The more volatile index also broke a support line and dropped below its October low (red line) – something that the other indexes failed to do.  Clearly, the technical situation for bulls is deteriorating.  A new high would expose 2341 (100% extension).

The NASDAQ continues to march higher after finding trendline support and is now looking to test the yearly high of 2,190. However, we are seeing resistance from former trendline support and given the fact that the Dow and S&P 500 are at major resistance levels we could see the tech laden index also susceptible to a retracement.