Two weeks ago, I concluded in my latest article about the Nasdaq 100:
“[The Elliott Wave Principle (EWP)] tells me the index has now reached an inflection point. Either complete a larger impulse to possibly, and ideally, as high as 13080, or only complete a countertrend rally to around current levels, possibly as high as 12730. I am personally still long (1/3 TQQQ position left) the index and have moved stops up to lock in remaining profits on any move lower, but to also remain exposed in case the index moves higher.”
Fast forward, and the index had topped at those “around current levels” that same day, for what is now labelled as a countertrend rally (red) b-wave. Yes, the market had all the potential to complete a five-wave impulse, but instead morphed into only a three-wave bounce. This is the best example of how markets work: it is all about the probabilities of possibilities. The market always has several options at any given point in time as it is dynamic, stochastic and probabilistic in nature. I personally, thus, got stopped out of my remaining 1/3 TQQQ position and locked in my hard-earned profits. That is how it is done.
In a normal flat, wave-c = wave-a (red dotted arrow), which could target as low as 10400. Flat corrections can also have truncated c-waves or even extended c-waves. It is, at this stage, impossible to know which it will be, so I must, logically, go by the regular flat until proven otherwise. In that case, the index will once again reach my ideal (red) wave-4 target zone. Besides, 4th waves normally retrace between 23.60 to 38.20% of the prior 3rd wave (purple box) and the latter sits at 10507. Thus, as already said two weeks ago, we should expect the NDX to reach 10500+/-100.
In the case of a truncated flat, expect the NDX to ideally stall around 10950+/-20, which is the lower end of symmetry breakdown based on the two black boxes. In the case of an expanded flat, expect the NDX to reach as low as 10150+/-50.
Bottom line
The NDX failed to complete the potential impulse path it was on since the September low, and morphed into only a three-wave bounce that completed on Oct. 12. Based on the EWP rules and price patterns, the current breakdown is, therefore, most likely a c-wave of a flat 4th wave down to, ideally, NDX 10500+/-100. The index has the option to stall at around 10970, but for now that is not preferred. Once these price levels are reached in the coming days, it is time to prepare for the next larger multi-month 5th wave rally to new all-time highs.
So, with three waves down into the September low and then a three-wave advance into the Oct. 12 high, which retraced around 90% of that down move, followed by a bearish break below 11590 initially, and below the 20 and 50 day simple moving averages this week, we are most likely dealing with a flat correction in EWP-terms as I already mentioned it could morph into two weeks ago:
“However, if the index breaks below 11590 from current levels, then that is a serious warning to the bulls. In that case, black wave-4 is most likely not complete, and we should see a revisit of the critical 10500 +/-100 level again. If that happens, the recent rally was a larger b-wave of what is called – in Elliott Wave terms – a flat correction for wave-4. Please see my website, https://intelligentinvesting.market/elliott-wave-theory/ for more information about what a flat correction exactly is.”
Therefore, I had my stops in place: successful trading thanks to the EWP.
Figure 1. NDX100 daily candlestick chart with EWP count.