I have identified three pieces of technical evidence suggesting an imminent top in the U.S. stock market, based on the NASDAQ-100’s chart shown below.
The Three Peaks and a Domed House pattern that I have been tracking is labeled in orange. The rising part of the pattern can be considered complete now as it seems to have fulfilled all necessary points. The only contrast from the idealized pattern is the rather compressed form of Points 15-20. However, looking at that segment closely, it still has the right number of ups and downs.
After the top of the domed house, the market typically returns to the Point 10 low. In the current instance, that would entail a drop of about 11%.
On the chart above, I also have an Elliott Wave pattern labeled in magenta and white. There is a clear five-wave pattern from the February 2016 low to the present. I think these are minor degree waves forming the first intermediate wave of the bull market’s Primary Wave 5.
But aside from specific technical patterns, the overall appearance of the chart above suggests that the current rally is vulnerable. Compare the previous two rallies (Feb – Apr 2016 and Jun – Aug 2016) with the present one that’s been underway since November. The current rally has lasted one month longer than the two previous ones, but falls short on both point and percentage gains. Additionally, the current rally has been much choppier. This sort of broadening upside suggests that the rally’s ability to absorb news shocks is fading.
At this point, any economic news that comes in below expectations, or further escalation of political conflict, could serve as a catalyst for a 10% correction.