Wednesday, May 18, 2022

Nasdaq 100 Update: Bounce Target Reached, Are Lower Lows Next?

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In my update from early last week, I asked the question:

“Did [black] wave-4, therefore, already bottom? It is possible, but the failure of the index to reach the purple target zone suggests to me it may have one more twist and turn in place. This “twist and turn” would be red wave-b and -c, as shown in Figure 1. The former, a counter-trend rally, should ideally top around 11335-11755 before wave-c moves the index to the ideal (purple) target zone of 10000-10500. Once wave-b is confirmed, I can then further adjust the ideal wave-c target zone as I am still trying to look around 2-3 corners simultaneously, which leads to increased uncertainty.”

Seven trading days later, and here we are, the is trading at around 11560 today. Right in the target zone and a 4.4% gain since my last update (if you had used it to go long the index). The index could still move higher to the 61.80% or the 76.40% retrace levels, without any problem, but the daily RSI5 is already getting overbought, which is all that is required for a B-wave. Besides, my proprietary AI Buy/Sell indicator is not showing the strongest of follow-throughs yet, since it switched -correctly so- to a buy Sept. 22. It is one of my indicators my premium major market members get to enjoy and profit from.

Figure 1. NDX100 daily candlestick chart with EWP count.

Thus, the question is if red wave-b is close to topping (alt: b), or if it has one more drop and pop in store (grey arrows). I cannot tell that with absolute certainty yet. Nobody can. But I can tell you the ideal bounce target zone from over a week ago has been reached; time to become more cautious, take profits, reduce long-side risk, etc. That is how my target zones can be used in your trading decisions. Luckily, we have the Elliott Wave Principle (EWP) on our side. As long as the next anticipated retrace (grey arrow for possible green wave-b) stays above the orange horizontal support level at 10900 on a closing basis, the grey path can still materialize.

The caution here is, as I’ve shared with you before, “the average annual U.S. election year pattern (see Figure 2 of my recent article about the S&P500: https://www.investing.com/analysis/sp-500-is-it-the-1970s-all-over-again-200536945). This pattern has a bottom by the third week of September, a counter-trend rally into late-September, and then a further decline into mid- to late-October.” So far, so good. The index bottomed in the third week of September, and if all of wave-b is complete, then it is right on cue for the further decline as well.

Regardless, both the EWP count and this average U.S. election year pattern, expect near term downside. So, watch that 10900 level. It will be of great help to determine if the grey path or the red arrow will materialize. If the latter, I can now narrow down the ideal target red c-wave target zone further, compared to last week, to ideally 9750-10150.





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