Levels to Watch (8/12/2016)

With the Dow making new highs on Thursday, 8/12, it looks like the market bypassed the opportunity to have a significant pullback. So, here are some levels to watch for on the upside:

Dow: 19700

S&P 500: 2292

NDX: 4865

NASDAQ Composite: 5331

At these levels, the rally from the Brexit low would equal the rally from the February low to the April top, on a point basis. The targets on the NASDAQ indices are only 1-2% above current levels, so I would like to see those targets cleared before making any big upside projections.

Updates (8/3/2016)

In my last post I said that it looked like Ford (F) was entering a new bull market phase. However, the stock fell sharply after the earnings report last week, and on Tuesday 8/2 it broke below the June 27 low of 12.00. The fact that it broke below that low, after what looked like a completed corrective pattern during March-June, is not good. However, before I change my longer term outlook, I will give it a chance to show that the recent drop was an aberration following a news shock. But sustained downward activity from current levels would suggest a bearish outlook for the intermediate term at least. Given that Ford is a cyclical stock that may be a leading indicator for the economy and the broader stock market, the longer term outlook for Ford could also depend on how long the bull market in U.S. stocks overall lasts.

Looking at the stock market overall, the Dow and the S&P 500 seem to be in some sort of corrective pattern that started a couple weeks ago. However, the NASDAQ-100 (NDX) continued charging higher until yesterday. Given that the downside seems to be accelerating on the Dow and S&P, I have made a chart to illustrate possible Elliott Wave counts on the NDX should the drop continue.

ndx aug 2 2016I

One possibility is that we have three completed, intermediate degree waves up from the February low. If that is the case, the NDX would have to bottom out above the April high at 4574 to avoid breaking the count.

The second possibility that we have a nested pattern developing (labelled in magenta) within the wave up from the June low. If that is the case, the drop could cut deeper into the recent gains but I would expect the total drop to be less than 9% (the magnitude of the April – June decline).

The latter scenario would be very bullish for the rest of this year, and it would almost certainly keep the bull market going until sometime in 2017. On the other hand, the former scenario could imply a final bull market top by the end of this year.

If it turns out that the short term downtrend continues, I personally think the nested count is more likely, but we’ll have to wait and see.