Update (2-25-2018)

ndx 2-25-18

Given the strong rally over the past two weeks on the U.S. stock market indices, which carried the NASDAQ-100 well above the last temporary high on Feb. 7 without much resistance, I find it likely that the NDX will retest or exceed its January highs before the next phase of the correction begins.

I now think the NDX is in an Elliott Wave expanded flat, as shown on the chart above. In an expanded flat, you get three waves down to the Wave A low, then three waves up to the Wave B high (which is slightly higher than the previous market top), then fives waves down to the Wave C low.

It is very easy to count three waves down from the Jan. 29 high to the Feb. 9 low (labeled in blue on the chart above). Furthermore, in the expanded flat idealized schematic (see the link above), the Wave 2 rally within Wave A occurs closer to the bottom of Wave A than the top, and that was the case in the present situation on the NDX.

The next question we need to consider is whether the entire correction could have been completed at the Feb. 9 low. That is a possibility, although I find it more likely that there will eventually be a retest of that low. There are two primary reasons:

  1. The drop from Jan. 29 to Feb. 9 took place in only 9 trading days. Since the 2009 bear market low, there has never been a correction of 9-10+% on the major indices which was that short. The shortest ones (on the NDX) were 13 trading days (Jan – Feb 2010), 18 trading days (Sep – Oct 2014) and 19 trading days (Jun – Jul 2009) . All of the others were longer than a full calendar month.

2. The chart of the Dow Jones Industrials Average (shown below) looks more bearish   than the NDX.

djia 2-25-18

The Dow has not retraced as much of the Jan 26 – Feb 9 drop, and it encountered more pronounced resistance in the vicinity of the temporary Feb. 7 high.

As you may know, I have been tracking a Counts from the Middle Section pattern on the Dow, based on the index’s activity during 2013-2016:

dow middle section count 2-25-18

The pattern projected a top for Nov – Dec 2017, but the recent top on Jan. 26 was not far off. I had previously thought that the top of this pattern would coincide with the ultimate top of the bull market, but it now appears that will not be the case.

Nevertheless, if the Dow were to break below its Feb. 9 low, this would be at least the 5th largest correction of the bull market, and I think that would fulfill the Middle Section projection. But to qualify as such a significant correction, it is likely that the correction would need to last longer than the 9 trading day period of Jan. 26 – Feb. 9. Thus, the middle section count is another factor suggesting that the correction is not over yet.

Rally (2/11/2018)

ndx 2-11-2018

There appears to now be a clear five-wave pattern down from the Jan 29 high on the NASDAQ-100 (NDX). The rally that began on Friday is most likely the start of a B-wave countertrend rally that will ultimately be followed by a marginal new low.

Update (2/6/2018)

Despite the strong rally in Tuesday’s trading session, I still expect a retest of the lows on the U.S. market indices. The correction has only lasted a week so far, and I do not think that is long enough for investor sentiment to turn bearish enough to establish a bottom of intermediate-term significance. The only question is how many retests or marginal new lows there will be.

Below are two Elliott Wave scenarios on the NASDAQ-100

ndx 2-6-18

 

ndx 2-6-18 alt

Before this correction is complete, there are likely to be three obvious waves of Minor degree (labeled in magenta on the chart). The first scenario assumes that one more drop to new lows would be required to complete Minor-wave A, whereas the second scenario assumes that the B-wave rally is already underway.

The midpoint of the drop from the Jan 29 peak to the Feb 6 low is 6,695 on the NDX. The index is getting close to that level now. If we get sustained activity above that midpoint, I would assume that the B-wave is indeed underway and that a subsequent decline to new lows would complete the correction.

 

 

 

U.S. Bull Market is Likely Still Ongoing Despite Sharp Drop (2/6/2018)

ndx 2-5-18.png

As I have written before, I have long been expecting a drop close to 10% on the NASDAQ-100 (NDX) to match the drop of Apr – June 2016 (labeled as white/intermediate 1-2 on the Elliott Wave chart above) which ended at the Brexit low.

It looks like that correction is happening now. As I type this in the early morning of Tuesday, Feb 8, 2018, the NDX is down 7.5% from the recent high. There is likely more downside to go, as corrections greater than 5% in this bull market have usually ended up lasting 1-2 months.

Aside from Primary-wave corrections (labeled in blue on the chart above), the most severe correction of the current bull market on the NDX was a 13% correction during Sept – Nov 2012. As long as the correction does not exceed that severity, I will consider the bull market to be remaining intact.