More Pain Ahead for the Nasdaq 100?
Dr. Arnout ter Schure | May 01, 2024 14:35
In our previous update from early April, we found that the Nasdaq 100 (NDX) had peaked at $18464 on March 21, which was only 0.81% below the ideal target of ~$18615 we had set forth three weeks prior. As such, we concluded:
“Thus, our preferred [Elliott Wave Principle] (EWP) count is for a larger top to have formed, and [the Index] is heading for the ideal black W-4? target zone of $15900+/-200.”
Over the next seven trading days, the index lost an additional 5.8%, validating our warning, but it has since staged a 5% rally to yesterday’s $17820 high. Thus, is the correction over, or did we experience a “Dead cat bounce”?
Once again, the EWP can greatly help us. Namely, the rally from the April 19 low has so far been in three (green) waves. See the chart in Figure 1 below. Three-wave rallies are counter-trend rallies, aka “dead cat bounces.”
h2 Figure 1: NDX Daily Chart with Detailed EWP Count and Technical IndicatorsThus, our preferred EWP count is for a larger top to have formed yesterday, the red W-b/ii, contingent on holding below the colored warning levels shown in Figure 1 above. The index should now be ready to embark on its red W-c/iii leg lower to ideally $15900+/-500, depending on the Fibonacci extension of this second leg lower.
Our less likely alternative is that yesterday’s high was only a fourth wave and a smaller decline to around $16700+/-100 awaits. The “countertrend rally and the next leg-lower” sequence can commence there.
However, based on seasonality for an election year, where we look at the Dow Jones because it allows us to have 32 data points vs. only ten if we use the much younger NDX, the recent April 19 low and April 29 high were right on queue. See Figure 2 below. Moreover, as you can see from our X-profile , we have accurately forecasted every market high and low since last week using a counter-trend scenario/EWP count.
h2 Figure 2. Dow Jones Average Seasonality for an Election Year Since 1897, Resulting in 32 Data Points.
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Thus, six weeks ago, we found the NDX would likely top at around $18615, and we got $18464. Three weeks ago, we warned that a significant top could have formed and were validated with a 5.8% decline since. The current rally off the recent low counts best as a counter-trend rally and, together with seasonality, suggests the next leg lower to ideally $15900+/-500, is underway, contingent on holding below the warning levels for the Bears outlined in this article. Lastly, please note that a break below the October 2023 low tells us the bull market is over.
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