Two weeks ago, after the NASDAQ 100 topped close to the ideal ~$17,000 target, I presented the option using the Elliott Wave Principle (EWP) for the index to correct 10-15%. Fast forward, and the NDX bottomed at $15,543 on Dec. 3 – a 7.4% correction.
Meanwhile, the Russel 2000 did not fare any better as it suffered a ~13% correction. Thus, the question is: Is that “all she wrote?” Let’s have a look at the daily chart.
Figure 1: NDX100 daily candlestick chart with detailed EWP count and technical indicators.
So far, the index has reached all the ideal Fibonacci-based extensions and retrace levels for various degrees of 2nd, 3rd, 4th, and 5th waves. Thus, and as I have stated before, this methodology remains one of the best tools available to accurately and reliably forecast where prices should ideally top and bottom.
Now, if (red) intermediate wave-iv is under way, as that is the preferred assumption, we must acknowledge that 4th waves are often flat corrections. Flat corrections consist of an initial three-wave drop (in this case blue wave-a?), followed by a three-wave advance (in this blue wave-b?) and a final five-wave decline (to red wave-iv). The Dec. 3 low got right in the ideal target zone I had set forth for my premium major market members several days prior. From there, I then forecasted the index would ideally rally to the orange resistance zone (smaller blue box). The index complied. Now, in flat corrections, the b-wave can become irregular, meaning it will go beyond the start of wave-a, which in this case is (red) intermediate-iii.
Since the index did not reach the (red) 161.80% extension at NDX16949 on the previous run, it would not surprise me if this rally/b-wave will do the trick. Or, as Darth Vader tells his son Luke in Star Wars: Episode V - The Empire Strikes Back (1980): “It is your destiny.” Thus, we have to watch for a possible breakout above the blue target box to propel the index to where it should have reached initially. The NDX can then stage its five-wave decline, which can either be shorter, equal or longer than the a-wave. But please keep in mind, the index is now at an inflection point. It only requires a catalyst to start the potential c-wave lower.
A break below yesterday’s massive futures-driven gap-up open would be an excellent first signal the red wave-iv lower target zone is up first before 17,000 is seen. Thus, thanks to the EWP, we now have our if/then parameters in place. And it appears, in the short-term, the easy money has been made. Letting the market decide what’s next would be a prudent approach. Long-term investors should ignore the current scribbles, whereas swing traders may also start to tighten up their stops and trades.