Upside Breakout from Triangle (5-6-2018)

ndx 5-6-18

The strong rally late last week pushed the NDX above the upper trendline of the triangle pattern shown on the chart. This strengthens the case that the correction has ended, especially considering that the breakout comes after previous resistance around the area of the trendline.

I now put the odds of a new uptrend at 70%. The next top of at least short-term significance is likely to occur in late May or early June, where the trendlines of the triangle converge.

Putting the recent market activity in the longer-term Elliott Wave picture:

ndx 5-6-18 long term

It appears we are now in the fifth intermediate wave (white) of the fifth primary wave (blue) of the bull market that began in 2009. I expect the NDX rally to a new high, but beyond that, I cannot predict how much higher the market can go.

However, drops within intermediate waves have generally not exceeded 5%. I would say that after making new highs, the next drop exceeding 8% is likely to be the start of a bear market.

 

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Complete Triangle? (4-30-2018)

After spending more time looking at the charts, I have found what appears to be a complete running triangle on the NASDAQ-100. I have shown this on the chart below of the QQQ ETF that tracks the index:

ndx 4-29-18

If this triangle is real, then the correction that began in January has just ended. I currently put the odds at 55% that this triangle represents a complete correction, and I would raise the odds to 70% if there is a convincing rally above the upper trendline.

However, the scenario I described in the previous post, in which the market stays in correction until the mid-summer, remains a possibility if economic or political news becomes increasingly problematic. I am still not convinced that the correction has been long enough or deep enough for there to be a renewed uptrend in the face of negative news.

But if a new uptrend has begun, the next top of short-term significance is likely to be in late-May, where the trendlines on the chart above converge.

 

Correction is Likely Still Ongoing (4-22-2018)

ndx 4-22-2018

There has been a significant rally off the April 2 low, but the rally has been very choppy and to my eyes does not look like the start of a new uptrend. I now think the NASDAQ-100 (shown above) is in a double-three combination correction. In this pattern you have what would otherwise be a complete corrective pattern (W), then a three-wave reversal (X), then another corrective pattern (Y). Usually W and Y are different types of corrections. In this case, W was a flat, which implies that Y will be either a zigzag or a triangle.

If this plays out I expect the NDX to take a shot at its January or March highs before retesting the lows of February or April. This whole process is likely to last at least until July.

 

 

 

Update (04-08-2018)

ndx 4-28-18

I now consider the odds slightly in favor of the correction being over. The chart appears to show a complete Elliott Wave running flat on the NASDAQ-100 (NDX). In a running flat, the C wave falls short of the A-wave termination point. The running flat is considered to be a rare pattern, so prospective patterns need to follow the guidelines very closely before making a call. However, I think the potential pattern shown above follows the guidelines as closely as you could ask for.

Running flats (as with all flats) have 3-3-5 subdivision. We clearly see three-wave subdivision in Waves A and B. Wave C appears to have five complete waves, with the fifth wave being an extended wave taking the form of an ending diagonal. The ending diagonal followed converging trendlines as would be expected.

Furthermore evidence that the correction may be over is that the Dow Industrials took out its February low by a small margin last week.

I put the odds of the correction being over at 55%. The alternative scenario on the NDX would be that the entire drop from 3/13 to 4/2 is only Wave 1 of C. But that scenario would imply an eventual drop well below the February low. The Jan-Feb drop itself was 12%, and a drop much beyond the Feb low would make this the biggest non-Primary degree wave of the bull market, something I find unlikely.

It is significant that after the low on 4/2, the NDX rallied above the upper trendline. The NDX then fell back to the trendline, but if it can get a substantial bounce off the trendline this week, I will raise the odds of a completed correction to 70%.

 

 

Still Expecting Another Leg Down (3/11/2018)

ndx 3-11-18

At the moment I am still expecting another drop on the NASDAQ-100 (NDX) to complete an Elliott Wave expanded flat. However, what would change my mind about this is if the NDX rallies more than 3% above the January highs.

In this bull market’s history, the biggest breakout margin on the NDX to be followed by a retest of the preceding low was in Sept 2012, when the NDX got 3% above its Apr high but then fell back to the vicinity of the Jun low.

I suppose you could also consider Apr 2010, when the NDX got 8% above its Jan high before retesting the Feb low. But in that case, the Apr – July correction was of an obviously different category than the Jan-Feb drop. In our current situation, if we were to get 8% above the Jan high and then fall back to the Feb lows, I would be more inclined to say that the bull market is over altogether.

 

Update (2-25-2018)

ndx 2-25-18

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:

  1. 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.

djia 2-25-18

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:

dow middle section count 2-25-18

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.

Rally (2/11/2018)

ndx 2-11-2018

There appears to now be a clear five-wave pattern down from the Jan 29 high on the NASDAQ-100 (NDX). The rally that began on Friday is most likely the start of a B-wave countertrend rally that will ultimately be followed by a marginal new low.