The selloff this week in U.S. stocks has put us right back in the same situation I described in early August, in which I see potential for two different wave counts to unfold.
This count shows four intermediate degree (white) waves from the February low. Noteworthy evidence in favor of this count is the fact that the NDX’s swing up from the June low to the August top was almost as big as the swing up from the February low to the April top (the latter rally was only 28 points shorter). If this scenario unfolds, the current drop would have to bottom out above the April top of 4754, and a rally to new highs would follow. The longer-term prospects for the market under this scenario are highly uncertain.
What would make this count likely is if the current drop extends below 4574 on the NDX. Here we would have a nested wave sequence within the third wave up from the February low. Significant evidence for this count comes from the fact that the Dow Jones Industrials Average has already overlapped it’s April top, and the S&P 500 is about to do so as well unless we bottom out ASAP.
So, we’re in an ambiguous situation now. Hopefully there will be more clarity in a couple weeks.