The major indexes continue to be propped up as they await for some Fed fixin's. Currently, the NASDAQ Composite is again hovering around that 2978 level we've talked about so often over the last few months. It's a very key level since it represents a complete 5/8 retracement from the April highs to the June low. What that means is the recent bounce off the June low was a very logical and natural reaction following the selloff, which started in late April. And, so has been where the Composite has stalled twice now since earlier this month. Here's why... Since most stocks and indexes never go up or down in a straight line, we can usually expect logical retracements of either 3/8 or 5/8. Those are the two key ratios I've found to be most reliable over the years. Some like to use 50% as a good round number, good for them. Any good charting software has the tools at your disposal, and more often than not, you can customize them. We are huge fans of logical retracement levels because they can often be very leading and predictable in nature. One can say the same for expansion levels. Expansion levels are the opposite of retracement levels but in theory are the same. For example, if a stock starts running, then pulls back to some sort of logical retracement level before resuming its upward trend, where do you think the stock will run to and inevitably stall? Exactly, most traders and investors have no idea, especially if they have no fundamental argument for a target in mind. Expansion levels again use logical ratios to calculate where most investors or traders are going to want to get out based on a specific entry point. This is exactly how we came up with our call of the top of the market back in late April. We used expansion levels and Elliot Waves to pinpoint where we thought this market would stall after Q1 and sure enough, it did. We called it almost perfectly to the number. It's all based on human emotion. Although we'd all like to think we're so different from one another in so many ways, which we are, there are still some very common threads that run through all of us. And, those common threads are emotions. The interesting thing when it comes to the markets is how we react to those emotions are so similar across the board from one individual to the next. That's where retracement and expansion levels become so reliable. It is a bit eerie, but reality is it works better than any other single technical tool I've ever come across in the markets. Once you understand that fear and greed will always plague the markets and that those two emotions consistently show up in very logical retracement and expansion levels, you are likely going to be way ahead of the herd. It gives you a much more predictive look at things as opposed to relying on simple moving averages, Stochastics or any other lagging analysis tool out there. Don't get me wrong, I'm not saying tools like Stochastics are useless. What I am saying is if you're going to be any good with technical analysis, you have to use tools and have ideologies that are very leading and predictive in nature, otherwise, you're just like all the rest. And, let's face it. It's the old 80/20 rule. Twenty percent of the people out there likely earn 80% of the money. I suggest if you want to use charts as part of your analysis arsenal, you start using retracement and expansion levels. Like anything else, they are not the holy grail, but they are a very key aspect to being a good charting technician, just like the ability to understand and digest financial statements in order to be a good fundamental investor. With all of that being said, if the Composite can't convincingly crack that 2978 level to the upside, there's a high probability we'll simply resume the downtrend that initiated back in late April. Since the beginning of July, we've tested the 2978 number twice now to no avail. See the circles in the chart here? No, I'm not trying to make it look like the Olympics logo. Will three times be a charm? I think we're going to find out very soon. The good news is we didn't just test it once and fail miserably. We tested it, pulled back, tested it again, pulled back and now we're testing it for a third time. That's resilience, as well as conviction. Maybe if we keep on chipping away at that 2980 level, it will crack convincingly to the upside and the markets can start moving higher. However, no matter how you slice it, it hasn't happened yet and until it does, I wouldn't get too overly excited.