Given the strong rally over the past two weeks on the U.S. stock market indices, which carried the NASDAQ-100 well above the last temporary high on Feb. 7 without much resistance, I find it likely that the NDX will retest or exceed its January highs before the next phase of the correction begins.
I now think the NDX is in an Elliott Wave expanded flat, as shown on the chart above. In an expanded flat, you get three waves down to the Wave A low, then three waves up to the Wave B high (which is slightly higher than the previous market top), then fives waves down to the Wave C low.
It is very easy to count three waves down from the Jan. 29 high to the Feb. 9 low (labeled in blue on the chart above). Furthermore, in the expanded flat idealized schematic (see the link above), the Wave 2 rally within Wave A occurs closer to the bottom of Wave A than the top, and that was the case in the present situation on the NDX.
The next question we need to consider is whether the entire correction could have been completed at the Feb. 9 low. That is a possibility, although I find it more likely that there will eventually be a retest of that low. There are two primary reasons:
- The drop from Jan. 29 to Feb. 9 took place in only 9 trading days. Since the 2009 bear market low, there has never been a correction of 9-10+% on the major indices which was that short. The shortest ones (on the NDX) were 13 trading days (Jan – Feb 2010), 18 trading days (Sep – Oct 2014) and 19 trading days (Jun – Jul 2009) . All of the others were longer than a full calendar month.
2. The chart of the Dow Jones Industrials Average (shown below) looks more bearish than the NDX.
The Dow has not retraced as much of the Jan 26 – Feb 9 drop, and it encountered more pronounced resistance in the vicinity of the temporary Feb. 7 high.
As you may know, I have been tracking a Counts from the Middle Section pattern on the Dow, based on the index’s activity during 2013-2016:
The pattern projected a top for Nov – Dec 2017, but the recent top on Jan. 26 was not far off. I had previously thought that the top of this pattern would coincide with the ultimate top of the bull market, but it now appears that will not be the case.
Nevertheless, if the Dow were to break below its Feb. 9 low, this would be at least the 5th largest correction of the bull market, and I think that would fulfill the Middle Section projection. But to qualify as such a significant correction, it is likely that the correction would need to last longer than the 9 trading day period of Jan. 26 – Feb. 9. Thus, the middle section count is another factor suggesting that the correction is not over yet.