In my last post on Elliott Wave, I suggested that the Nov. 4 low might have been completed an Intermediate Wave 2 decline within a Primary 5th Wave that began in February. But after staring at the charts some more, that count on the NDX just doesn’t look quite right.
The drop from Oct 10/25 – Nov 4 just looks too shallow to be an Intermediate Wave 2. Given that the Dow and S&P are in a strong rally to new highs, I find it unlikely that the NDX will reverse downward and break the Nov. 4 low without having made new highs.
Thus, I now think a better wave count would be to label the whole period sideways period from August-November as a minor degree 4th Wave, as shown on this chart:
There also appears to be a George Lindsay pattern, Three Peaks and a Domed House, underway on the NDX.
This is the strongest prospective TPDH that I have seen since the large-scale instance that took place on the Dow during 2014-15. Typically, the duration between Point 14 and the top of the house is roughly equal to the duration which the three peaks spanned. In the current instance, Points 3-7 spanned about two months, suggesting that the pattern will top out in early-mid January 2017.
A scenario in which the market drifts higher in December and then tops out in January would fit a seasonal pattern which has been rather prominent in recent years.
But now I should address the burning question of whether a January top would mark the end of the bull market. As you may already know, I am tracking another George Lindsay pattern, Counts from the Middle Section, on the Dow Industrials index. I last described it in detail in a post from September, but to summarize, I have two interpretations of the pattern which give different projections for the bull market top. One scenario projects a top in January 2017, and the other projects a top in Nov-Dec 2017.
I still favor the count in which the bull market continues through most or all of 2017. My view is that, in the current environment of low interest rates and bearish/anxious public sentiment, the only thing which could trigger a bear market is an outright economic recession. However, I think that the election outcome has greatly reduced the risk of a recession next year.
For reasons I described in my election commentary, I expect the Trump administration, in conjunction with the GOP-controlled Congress, to implement a fiscal policy that will boost economic growth. Although the growth acceleration could take more than a year to take off, the stock market is forward-looking, and if Trump keeps lower corporate tax rates and a more business-friendly regulatory environment in his agenda discussions, the market is likely to trend higher. It may be a volatile rise though, given the uncertainty regarding how some elements of Trump’s agenda will play out (similar to how, during Obama’s first year, the stock market exhibited sharp short-term reactions to all of his major policy proposals, even though the market trended higher).