Technicals

S&P 500 Seeing Trendline Support, But Downside Risks Remain

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 has traded lower since being slowed by trendline resistance as we have started to see the current upward trending channel begin to widen. We could see a retrace back toward the lower bound before an ultimate test of resistance at 10,581-61.8% Fibo of 13,136-6,469. A break above resistance leaves potential to 11,000.

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 slowed ahead of resistance at 1,120- 50.0% Fibo of 1,576- 666 opening the door for a test of trendline support near 1,060. We saw bearish momentum slow at the longer-term trendline at 1,090 which could lend support as well. A Break above the Fibo level exposes 1,150.

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 has started to trade lower after finding resistance at former trendline support opening the door for a test of trendline support near 2,100.