In last week’s article, I concluded for the Nasdaq 100, based on the Elliott Wave Principle and technical analysis:
“Although not necessary, a last intra-day stab lower to SPX12710+/-10 within the next few days can be allowed for, and thus this week’s triple bottom should hold on a daily closing basis. If not, a larger flush down to 12200, based on simple symmetry, cannot be excluded. Even such a big pullback would still not invalidate the EWP count as shown, for as long as the (red) intermediate wave-i made on Oct.12, 2020, at 12187 is not exceeded to the downside. Why? Because in an EWP standard impulse, a 4th low and 1st wave high are not allowed to overlap. If that happens, I must adjust my thinking and accept that a much larger top may already have been struck.”
One week later and here we are: Last week’s triple bottom did not hold, and 12200 came in rapid order as the index moved to as low as 12208 this morning. See Figure 1 below.
What happened?
Last week’s triple bottom, combined with this Monday’s high formed a complex minor b-wave (in green). After a B-wave always follows a C-wave, and the break below last week’s triple bottom, which I suggested last week should be used as a stop loss for any long positions, ushered in the minor green wave-c down. C-waves are often equal to the prior A-wave: green arrows. And thus, last week’s warning came to fruition: “This week’s triple bottom should hold on a daily closing basis. If not, a larger flush down to 12200, based on simple symmetry, cannot be excluded.”
Figure 1. NDX100 daily candlestick chart with EWP count and technical indicators.
The other critical part of last week’s conclusion is “the (red) intermediate wave-i high made on Oct. 12, 2020, at 12187 is not to be exceeded to the downside. Why? Because in an EWP standard impulse, a 4th low and 1st wave high are not allowed to overlap. If that happens, I must adjust my thinking and accept that a much larger top may already have been struck.”
With today’s low at 12208, the bulls hang with one finger on the edge of the cliff. Thus, the ideal downside target of 12800-13200 was exceeded, resulting in the market gunning for its symmetry target at 12200. That was achieved today, underscoring the market does not have to be ideal, textbook and picture-perfect. It does what it does, but will still adhere to the EWP. All we, as market participants, can, therefore, do is “anticipate, monitor, adjust if necessary,” see below for the stages of applying the EWP to the recent market:
- I anticipated 12800-13200 to be reached. That was achieved last week: perfect. The question remained: “Is the wave-iv low in? Likely, but only if the triple bottom holds!”
- I then monitored for a possible break of that triple bottom. It did not hold and it broke.
- I then adjusted as necessary with new anticipation: “The wave-iv low was not in: expect 12200 to be reached based on simple C=A symmetry.” That was achieved today: perfect. Critical criteria remain: “But today’s low and 12187 need to hold. Otherwise, a much larger top has been struck.”
The above is the proper way to apply the EWP to analyze and forecast the markets, use it for trading (appropriate stop levels), and remain objective and factual. It is not moving the goalpost, but knowing the markets is all about the probabilities of possibilities. When we are dealing with a probabilistic environment, we must apply “if/then” scenarios. The EWP is an excellent tool for that.
Bottom line: Last week’s triple bottom did not hold, and the bulls are mere inches away from a significant top, as the NDX swiftly dropped to the anticipated 12200 levels based on simple EWP-based wave-C = wave-A symmetry. If today’s low can hold going forward, the NDX can start moving back to its ultimate bull market target in the low 14000s.