I am staying with a bearish short-term outlook. As shown on the Elliott Wave chart above, I think the NDX is in a Minor Wave B within an Intermediate Wave IV correction. I expect the NDX to stall below the all-time highs and then fall down to ~14,438, the 38.2% Fibonacci retracement level of the rally from September 2020 – November 2021.
If, on the other hand, the NDX takes out its all-time high, I still think we would be in an ongoing corrective phase, but in that scenario, the index would likely fall again but bottom out just a little under the Dec 3 low of 15,543.
The NDX fell below the Dec 3 low of 15,543 during Monday’s session, which suggests that the index is now in Wave C of the drop from the Nov 22 high of 16,764. I think that this correction will end at 38.2% Fibonacci retracement of the rally from September 2020 – November 2021, as shown on the chart above. Falling to that Fibonacci target would be about a 14% drop from all-time highs.
Even if the NDX were to blast off from here and reach new highs, I would not assume that the corrective phase ended. This is an Intermediate Wave IV, and the corresponding Wave II was a 14% drop in September 2020. This current corrective phase will either need to be close to that magnitude, or else, be shallower but longer, in the form of a Flat, Triangle, or Combination.
As for the Dow:
I’m back to thinking the Dow may be in a Lindsay Three Peaks Domed House. For this pattern to happen, the Dow will have to fall at least below Point 6 (33,613); I suspect it will do so given how much downside is likely remaining on the NDX.
Regarding the omicron variant situation:
The bizarre decision of some European governments to reimpose economically-disruptive restrictions on both the vaccinated and the unvaccinated has likely spooked the U.S. stock market. But I do not think the omicron variant puts the United States in a situation fundamentally worse than previous covid waves. This is due to booster shots now being available, and more natural immunity in the population, both of which should be highly effective in preventing severe disease from omicron. Since the U.S. went through the summer delta wave without shutting down, I don’t expect that we would shut down now.
I’m not opposed to vaccine passport systems and workplace vaccine mandates; wider adoption of these measures would be the most reasonable way to attempt to slow the spread among the unvaccinated and reduce the number of severe cases.
U.S. stock index futures are down sharply for Monday’s session. If the NDX falls below the Dec 3 low of 15,543 after the market opens, there will likely be a continuation downward to 14,438 during the coming days or weeks. That downside target is 38.2% Fibonacci retracement of the rally from September 2020-November 2021.
I still think the NDX is in a Flat from Nov 22, in which case the Dec 3 low of 15,543 will hold for the time being, and the index will rally to approach or exceed its all-time highs before falling below the Dec 3 low.
Here’s a longer term Elliott Wave view of the NDX:
On the Dow:
I’m expecting one more push higher before the Dow stalls below its all-time high and falls to the lower trendline of a triangle that began on Aug 16.
I still think the Dec 3 low of 15,543 on the NDX will hold during this current pullback and that the index will subsequently approach or exceed its all-time highs before the final leg down of a corrective phase from the Nov 22 high.
The Dow will likely make at least one more rally before it stalls below all-time highs and drops to complete the triangle from Aug 16 described in the previous post.
Since the lows last week, all of the major U.S. stock indices have had by far their largest rallies since the November all-time highs. I still think that corrective patterns are ongoing, but will be milder than I previously anticipated.
Below is my current projection for the NDX:
I still think we are in an Intermediate Wave IV, but it’s probably taking the form of a Flat, in which the NDX will approach or exceed its Nov 22 high of 16,764 before falling slightly below the Dec 3 low of 15,543. I expect that the eventual bottom will be near 23.6% Fibonacci retracement of the rally from September 2020 to November 2021, as shown on the chart above.
As for the Dow:
I now think the Dow is in a running triangle that started on Aug 16. If this pattern plays out, the Dow will stall below its all-time high of 36,565 and enter another significant drop, but the final low will be higher than the Dec 1 low of 34,460.
I think the Dow has entered (or soon will enter), the fifth wave of the decline from Nov 8. I expect this wave to take the Dow below the Sep 20 low of 33,613, and complete an Expanded Flat that began on Aug 16, and also complete a broader corrective pattern (a Double Three) that began on May 10.
If this current decline goes below the Sep 20 low, it could end up being the separating decline of a George Lindsay Three Peaks and a Domed House, with the three peaks on May 10, Aug 16, and Nov 8.
Looking at the NASDAQ-100 (NDX):
I think the NDX has more downside ahead than the Dow. The chart above shows Fibonacci retracement levels of the rally from September 2020 to November 2021. The 23.6% level is likely to be only temporary support, given that a drop to that level would only constitute a decline of ~8.5%, and given the Elliott Wave scenario shown on the chart, I expect this current drop to end up being bigger than any decline since September 2020.
The 38.2% retracement level, on the other hand, is likely to be a strong support level. A drop to that line would constitute a ~14% correction, matching the 14% drop in September 2020. This would also put the NDX in the proximity of the Oct 4, 2021 low, strengthening support in that zone.
What I suspect may happen is that the Dow will bottom out first, but if indeed it is in a Three Peaks Domed House, it will likely chop around near the bottom for a little while, during which time, the NDX will continue downward.
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