Last week, I showed how the NASDAQ 100 could have put in a multi-year top. Since corrections can be notoriously complex from an Elliott Wave Principle (EWP) perspective, due to many overlapping bear market rallies, “anticipate, monitor and adjust if necessary” will now be necessary more than ever.
However, from the EWP we know that each correction, big or small, comprises at least three waves: a, b and c. Yes, bear markets are also corrections, but simply on a much larger time frame. Thus, if the NDX has put in a multi-year top, the current eight-month-long decline will only be wave-a, possibly even a smaller wave-a of a. Indeed, every bear market always has at least one multi-month counter-trend rally, wave-b, before the selling resumes in wave-c. At this stage, it appears wave-a could be completed sooner than many may think. Allow me to explain.
Figure 1. NASDAQ100 daily candlestick chart with detailed EWP count and technical indicators
During the first three months of the year a possible bullish wedge pattern – or diagonal – was forming (red dotted arrow). If confirmed, i.e., a break out of the pattern, it would target NDX 15,000, because diagonals often get retraced to their start. The index did not disappoint and topped at ~15,300 in late March. Back then, positive divergence (solid green arrows) formed between the technical indicators (TIs) and price. Similar to the January-March setup, now an even larger possible diagonal is forming (dotted black arrows) and positive divergence is building again (dotted green arrows).
Based on the EWP count, the decline since the March and June highs can be considered complete, but as shown (grey “alt: iv”, “alt: v”) another stab lower to around $10,500+/-500 cannot be excluded just yet. Hence, that is why I state the pattern is possible: it has not been confirmed yet. There is a condition on the chart, but no trigger yet. The trigger will be a breakout, which holds, that then technically can target once again as high as ~15,000: dotted blue arrows.
Or, in other terms: forewarned is forearmed.