My previous post gave a longer term perspective on the U.S. stock market, but here is a shorter term perspective:
A clear five-wave pattern can be seen from the 4/25 low to the 6/20 high on the NASDAQ-100. A .618 Fibonacci retracement of that rally would bring the NDX down to 6763, amounting to a 7.5% correction. Most likely, the current drop will end at or above that target.
In my previous post I stated that a drop bigger than 5% could indicate a bear market has begun. The NDX is currently sitting 4.6% below its 6/20 high. I will allow the additional 2.5% on the downside to meet the Fibonacci target. But any downside below 6763 on the NDX would cause me to put the bear market odds at 60%.
Although the NASDAQ-100 has been stumbling since overtaking its Jan/Mar highs, the economic fundamentals should be strong enough to support a continued bull market for the time being. However, as shown on the Elliott Wave chart above, we now appear to be in the final Primary wave (blue) as well as the final Intermediate wave (white) of this bull market. It is difficult to predict when the bull market will end, but the percentage gains of Primary Wave I (Mar 2009 – Apr 2010) could serve as a basic estimate. An equivalent move up from the Primary Wave IV low in Feb 2016 would put the NDX at approx. 7,700.
In this bull market, drops on the NDX of magnitude smaller than Intermediate have rarely exceeded 5%. The only exceptions have been Sep – Nov 2012 (13%) and Mar – Apr 2014 (9%). Both of those were in the middle of a lengthy Primary wave extension, where deeper subwave corrections are to be expected.
Thus, under current circumstances, a drop on the NDX exceeding 5% would be a warning that the bull market might be over.