Unlike the 1990's, when stocks were soaring into levels unkown. In this decade, we seem to be climbing the price level ladder that is already in place. What I mean by this, is that when the market collapsed during the early part of the decade, certain resistance levels were created on the way down. The market would decline, then start to rally, run into selling pressure, and then resume the decline. These selling pressure levels now provide the market with resistance on the way back up. I like to call these EW pivots points, because they usually occur at a specific turning points within a wave. If you recall, we used EW pivot points to aide us in identifying the end of the recent intermediate term correction, and also when the advance began, in identifying certain levels the markets needed to penetrate in order to get the advance going in earnest.
I have fully examined three of our four horsemen: NAZ/NDX/SPX. The DOW chart is very cluttered, and it is less than 10% from an all time high anyway. The TRANsports have already exceeded their all time highs, and are establishing new record highs with each passing week. The SOX index, well let's just say it has a lot of work to do. I've posted the three charts: NAZ/NDX/SPX '5year'.
The most promising of the three indices, and the one most likely to get us too bullish if looked at alone is the NAZ. If you review the chart, you will notice the cluster of resistance levels on the left, topped by 2328, then 2593 and 2892. The cluster, which occurred in mid 2001, has already provided resistance to this bull market. Wave 1 topped at 2192, 2197 was the previous resistance. Then wave i topped at 2220, 2216 was the previous resistance. Remember these are pivots: a level that has to be penetrated and then used as support in the attempt to penetrate the next level. Thus, when they actually create major resistance the top can be just below or just above the level. The NAZ closed on friday at 2273, which means there is little resistance ahead, and we are approaching the next important pivot: 2328. After 2328 is penetrated, then we have to travel over 250 points before the next pivot arrives: 2593; and then another 300 points to the next pivot. It certainly looks like clear sailing for the NAZ once we penetrate 2328. But remember I started off this paragraph by saying; "the one most likely to get us too bullish if looked at alone". On to the SPX!
The SPX provides us with a similar cluster topped by 1316, then the next level 1337 and finally 1383. You will notice the 1316 cluster again provided the market with several resistance levels. Wave 1 topped at 1229, 1226 was the previous resistance. Wave i topped at 1246, 1240 was the previous resistance. The next resistance level in the cluster is 1287, the SPX closed on friday at 1265. Oddly enough, we have been projecting 1280, based upon fibonacci relationships, as our first target for this intermediate term uptrend. After 1287 is surmounted we then have 1316, 1337 and then 1387. It doesn't look as exciting as the NAZ!
The NDX provides us with an even more conservative view. Unlike the NAZ/SPX which are both dealing with the cluster from mid 2001. The NDX is still dealing with a lower cluster from late 2001: 1710 and 1735. The NDX closed on friday at the high for the bull market thus far: 1709. Interesting right? So it would appear from this viewpoint that the NDX is lagging the other two indices. In time parameters it is. In price appreciation from the bear market low of Oct 9, 2002, it is actually leading all four indices in percentage appreciation. The current score: NDX +111%, NAZ +102%, SPX +62% and DOW +50%.
What can we conclude from all this analysis: never look at one index in isolation of the other major indices. The NAZ looks like it has clear sailing after surmounting 2328, and maybe it does, but not without the help of the NDX/SPX. But more importantly, in my opinon, we now have identifiable EW pivot points for probably most of the rest of this bull market: potential resistance levels to intermediate term advances. Look how nicely the past pivot levels pinpointed the recent previous tops in the NAZ and the SPX, within less than 1/2%. And, lets not forget, as this intermediate term advance unfolds it is creating pivot points for its correction. These will be used to identify the next intermediate term bottom as it unfolds.
In summary: the NDX pivot of 1710 should not provide much of an obstacle as it is isolated. However, the next series of EW pivots: NAZ 2328, NDX 1735 and SPX 1287 should provide resistance to our current wave 3. Lets see how the internal wave structure looks as we approach these levels.
