The Dow has gotten a decisive rally off the 38.2% Fibonacci retracement level of the entire advance from March 2020 – January 2022. I think that the correction is over, but in order to be highly confident in that prediction, I need to see more upside on the other indices as discussed below:
For the S&P 500:
The June 17 low was in between 38.2% and 50.0% Fibonacci retracement of the March 2020 – January 2022 advance. Thus, in order to be highly confident that we’ve found a bottom, I want to see a rally larger than any interim rally that we’ve had on the way down. The largest interim rally was 523 points from Feb 24 – Mar 29. To exceed the size of that rally, the S&P needs to rise above 4,159.
Looking at the NDX:
The June 16 low was in between 50.0% and 61.8% Fibonacci retracement of the March 2020 – November 2021 advance. The largest rally on the way down has been 2,245 points from Mar 14 – Mar 29. To exceed the size of that rally, the NDX needs to rise above 13,282.
On June 17, the Dow hit 38.2% Fibonacci retracement of the entire rally from March 2020 – January 2022. It is possible that this marked the bottom for the overall U.S. stock market, but it is too early to say. See my previous post for downside targets for the other indices.
Above is a chart of the NASDAQ-100 (NDX), with my Elliott Wave count from the March 2020 low through the present.
The NDX has broken the May 20 low. It is now likely that the index is headed down to 10,588, which is 61.8% Fibonacci retracement of the entire rally from March 2020 – November 2021. This would be a 37% drop from all-time highs.
Looking at the S&P 500:
The index is likely headed to 3,504, which is 50.0% Fibonacci retracement of the rally from March 2020 – January 2022. This would be a 27% drop from all-time highs.
And as for the Dow Industrials:
There is a possibility that the Dow could find a bottom at 29,793 (38.2% Fibonacci retracement of the rally from March 2020 – January 2022), and this could prompt the bottom for the overall stock market. This would be a 19% drop from the Dow’s all-time high. But this retracement level is only 2.4% below the close on June 13, and my targets for the NDX and S&P are 6.2% and 6.5% below, so if either of those latter two indices are driving the market, 38.2% Fib. on the Dow is likely to fail. In which case, the Dow may fall to 50.0% retracement at 27,582. This would be a ~25% drop from all-time highs, and a 9.6% drop from the current level, but I don’t really think it’s going down that far.
Public sentiment on the economy, stock market, and matters in general is extremely bearish as a result of inflation and other situations. Judging by the mood of social media, there seems to be almost as much negativity as there was at the depths of the late-2000s recession. This is despite the fact that employment is still growing at a healthy rate.
Below is a table from the Bureau of Labor Statistics of the monthly net changes in the number of nonfarm payroll employees, going back to the year 2000:
(numbers shown are in thousands)
data retrieved 6-14-22
The previous two recessions (Dec 2007 – Jun 2009 and Mar 2001 – Nov 2001) were foreshadowed by multiple dips below zero in net payroll changes, starting at least five months before the recession onset.
In the present situation, due to the absence of any such occurrences in recent months, I do not think that a recession is imminent.
Regarding inflation, below is a prediction that I made in a post from May 2021:
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“Inflation will likely pose a very real risk in the second half of this year due to an economic reopening that’s about to accelerate, with a backdrop of massive monetary stimulus. That said, the Fed should be able to taper quantitative easing, or even raise interest rates, without derailing the recovery, since we are dealing with an economy rebounding after external suppression, as opposed to an economy that’s naturally overheating and vulnerable to a crash.”
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Given the level of negativity in public sentiment, against the backdrop of an economy that I still expect will avoid recession, I really don’t see how the stock market indices could drop more than 6-7% from the current levels.
On May 20, the S&P 500 hit 38.2% Fibonacci retracement of the entire rally from March 2020 – January 2022. This appears to have marked the bottom for the U.S. stock market overall. I am confident that this is the bottom on the basis that the subsequent rally has taken out the previous interim high of 4,090 on May 17.
The chart above shows my Elliott Wave count. I think that the S&P has just entered Primary Wave III. A reasonable target is Fibonacci 1.618 times Primary I on a point basis. This produces a target of 8,060, which I expect to be hit within the next three years.
Moving on to the NASDAQ-100 (NDX):
The NDX found a bottom near 50.0% retracement of the rally from March 2020 – November 2021. Like the S&P, the subsequent rally has taken out the interim high on May 17. My Primary Wave III target for the NDX is 27,660 (1.618 times Primary Wave I).
The “separating decline” (Points 7-10) was unexpectedly severe. If we don’t get an obvious formation of Points 11-14, I will discard this instance of Three Peaks Domed House.
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