NASDAQ 100 Update: Road To 18,000 Not Going To Be Easy

Who said the markets were easy to track, trade and forecast?

Nobody. If they were that easy, they simply would not function because everyone would always be on the right side of the trade. Let me start with a quote credited to renowned economist J. M. Keynes, but, in fact, it may have been Paul Samuelson who was awarded the Nobel Prize in economics in 1970 who said:

“When the facts change, I change my mind. What do you do, sir?”

(Source: here)

Since the financial markets are stochastic, probabilistic, non-linear environments, I boil this quote down to “all we can do is anticipate, monitor and adjust if necessary.” However, thanks to the Elliott Wave Principle (EWP), there are certain rules the markets must adhere to. And when combined with technical analysis we have a powerful way to analyze what is most likely to be next for the financial markets. The former provides explicit if/then scenarios and the latter supports the probability of the possibilities assessment of the EWP options available.

For example, in my last update of the NASDAQ 100, I stated:

“The index will have to move below the 76.40% Fibonacci-extension at $14,450 to start to suggest something more bearish is afoot.”

And:

“It will require a break below $14,450 to upgrade the EWP to a one-degree higher 4th wave.”

The index closed on Jan. 21 at $14,438, thus telling us it wanted to go lower. Which it did. It bottomed on Jan. 24 at $13,725. I, therefore, adjusted my preferred EWP count from a wave-iv of three corrections to a one-degree higher wave-4 correction as the index overlapped with the February 2021 high: wave-i of 3. Because we know from the EWP that first and fourth waves are not allowed to overlap in a standard impulse, only in diagonals (see here).

With that out of the way, the next task came along: assess if the index indeed had bottomed out for wave-4 or if wave-4 would become more complex. Two trading weeks later, and the index has not tipped its hand yet, so allow me to assess the two most likely options it has. And please remember, “while I know everyone always wants to know exactly what's next, there are simply times when things are less clear, and we must let the market communicate.”

Figure 1: NDX 100 daily candlestick charts with detailed EWP count and technical indicators.

NDX 100 Daily Chart.

At this stage, the NDX is at a crossroads from an EWP perspective. Namely, this week’s rally did overlap with wave-1 of wave-c of wave-4 lower (called bearish cut off in Figure 1A). Thus, this suggests the wave-4 correction is complete, and the fifth wave to NDX 18000 is in the starting gates. The only way for the index to make a low below the January low is to morph into an expanding ending diagonal (EED) wave-c. See figure 1B. EEDs are, however, unusual price patterns. Thus, and as I told my premium major market members on Friday:

“if the bulls can push the NDX above last week’s high from around current levels, then that seals the deal, and the larger wave-5 to NDX17K+ is confirmed. But if the bears can push the NDX below 14300, and especially 14080 from around current levels, then that seals the deal for the expanding ending diagonal wave-c to ideally NDX13600+/-300.”

In addition, technical analysis tells us the MACD is on a buy and pointing higher, whereas money flows back into the index as the MFI14 moves up. But, albeit not shown, the NDX is below its 200-day simple moving average (SMA), which is critical delineation. As such, I am currently 40/60 (Fig. 1A/Fig. 1B) about the market’s true intentions because expanding ending diagonals are uncommon, but the index is still weak.

Bottom Line: From an EWP perspective, the NDX can still try for a last stab lower to NDX 13600+/-300 to complete a more significant fouth wave, but it will have to drop below NDX 14080 to confirm this option, with a severe warning below NDX 14300.

On the other hand, a direct rally over this week’s high will mean the more significant fifth wave to ideally NDX 18000 is then confirmed. Since the former option is based on a less common diagonal price pattern, whereas the technical indicators are pointing up and are on a buy, but the index is below the 200-day simple moving average, odds slightly favor the wave-5 option. However, just because an alternative has low odds doesn’t mean the market will not take it. As such, by diligently tracking the price action over the next few days, I will know soon enough which door – A or B – the market will go through.