So, this week I’ve been thinking a lot about the market’s recent movements and reviewing historical charts, and it looks like there could be continued upside in the coming weeks and possibly months.
It looks as if the Dow, NDX, and S&P 500 are about to make new highs. In my Oct. 22 post, I labeled the current rally on the NDX as an upward B wave. Although B waves can make new highs, the sharpness of this present rally (without any meaningful pullback along the way) is not characteristic of rallies within corrections.
So, I am updating my Elliott Wave Counts for the Dow and NDX:
In general, I don’t favor complicated wave counts with lots of subdivisions or long wave extensions. Though I’ve found a lot of value in the Elliott Wave Theory, it is after all just a theory, and when counts become too complicated, they can get disconnected from reality. That’s what I think is happening with the Elliott super-bears who are using a zillion numbers and letters to label the whole move up from 2009 as a bear market rally.
I like to think of market history as telling a story, and then sidestep complexities a bit to see at what periods was the market basically corrective, and at what periods was it basically impulsive. And then I look to see if there’s an Elliott Wave pattern which fits that narrative. However, within a general market outlook, I’m willing to let wave counts grow in complexity if the market action calls for it which I think is the case now.
I still think that the market is not too far away from the top of Primary 3 and that it could occur anywhere between present levels and 4800 for the NDX and the mid-18000s on the Dow.
I’ll post some additional information this weekend.
We’ve had a strong rally this week that overlapped the Oct. 2 low on the NDX. This leads me to think that the rally is the B-wave of the whole correction as shown on the chart below:
The selloff has gotten really intense, although I think another bounce is going to happen within the next week. The charts below show my projections for how I expect this correction to play out from an Elliott Wave Standpoint. Click on the charts for more clarity.
Dow Jones Industrials Average:
The Dow is different in that it appears to be in an expanded flat correction. The C Wave of an expanded flat usually breaks down into five subwaves instead of three.
Here is my current interpretation of the NASDAQ-100 (NDX) from an Elliott Wave perspective. Overviews on different Elliott Wave Patterns can be found here: http://thepatternsite.com/Elliott.html
It looks like we had a downward leading diagonal from the top on Sept. 19. A leading diagonal is an exception to the usual wave principle in that within a Wave 1, Subwave 4 can overlap Subwave 1. Highs and lows within the pattern usually follow trendlines. I think the drop shown above completes a Minor degree Wave 1.
Because of the major selloff below the mid-September lows on Wednesday (coupled with technical patterns as shown below), I now consider the intermediate term direction to have turned lower.
On the Three Peaks and a Domed House patterns that I have been monitoring, on the NDX/QQQ, it appears that the rising part of the pattern is complete. A description of Three Peaks and a Domed House can be found here: http://thepatternsite.com/3peaksdome.html
After point 23, an index usually drops back to its point 10 low. For the pattern labeled in white, that would be a drop of about 14% from current levels. Sometimes the market goes even lower.
From an Elliott Wave perspective, it appears that the NDX recently reached the top of Primary Wave 3 of the bull market from its November 2008 bear market low. On the chart below, Primary waves are labeled in blue.
On the Dow, it looks as if an expanded flat correction, big enough to be Primary degree, has been underway since January. The choppy upside movement ever since February is why I consider the February-September rally to be the B Wave of a flat rather than an impulse wave. The Dow appears to have formed a double zigzag rally.
The Dow will likely fall below it’s February low and find support in the vicinity of the 2013 lows in the mid-high 14000s.