As described in the previous post, I have updated my Elliott Wave counts for the Nasdaq-100 and the Dow to allow a continued rally in response to the strong upside recently. As for the Three Peaks and a Domed House patterns that I had been tracking on the NDX, the larger pattern’s final decline fell far short of the expected target. However, the smaller pattern did come to a completion as the index took out the August low by a large margin.
Here are my current Elliott counts:
I think both indices are in a Wave 5 of Intermediate degree. The question becomes, how high will Wave 5 rise? That is often difficult to determine. Occasionally, after highly extended 3rd waves as we saw in this cycle, the 5th wave fails to even make a new high. Assuming the market does make a meaningful new high, a target that Elliotticians often watch is the level in which Wave 5 equals Wave 1. On an arithmetic point basis, such a relationship implies very limited upside from current levels (only about 100 points on the NDX, 500 points on the Dow, and no substantial upside on the S&P 500). Therefore, any drop that exceeds 5% with accelerated selling should be taken seriously and would probably signal the start of a Primary 4 correction.
However, a logarithmic analysis of the market provides a more bullish outlook. On the log chart, a Wave 1 = 5 relationship would give us a target of about 18500 on the Dow, 4700 on the NDX, and 2200 on the S&P 500.
If upside continues from here, the Dow appears to have a prospective Three Peaks Domed House pattern developing:
The “domed house” rally of the pattern tends to last roughly as long as the “three peaks phase”, which in this case would imply a top during the 2nd quarter of 2015.
In addition to Three Peaks Domed House, I just recently identified a prospective instance of another George Lindsay pattern (the Ascending Middle Section) on the Dow. This pattern is rather complicated to explain, so I’ll make a separate post about it soon.