In our previous update from late March, we assessed where the NASDAQ 100 (NDX) could ideally top using the Elliott Wave Principle (EWP), and we postulated back then:
“…When we assess the daily chart, see Figure 2 above, we find that the typical W-5 = W-1 relationship targets ~$18615, …, the colored dotted lines are the warning levels that will tell us if the uptrend is in jeopardy. The Bulls’ 1st warning is the blue level at $18,3000. The 2nd warning is the grey level at $18000, etc. This means that below the red warning level (the green W-4 low), the black W-4? is underway to ideally NDX15900+/-200.”
Fast-forward: The index peaked at $18464 on March 21, which is only 0.81% below the ideal target of ~$18615 and has declined since. The index has now broken below two of the four colored warning levels for the Bulls we had identified ($18300, $18000, $17750, $17300), as it is currently trading at $17980.
Moreover, it has lost the (green) 20-day Simple Moving Average (d SMA) but is sitting right at the 50d SMA. Besides, all the technical indicators (TIs) are pointing lower and are on a sell, adding weight to the Bearish evidence. However, it is still above the Ichimoku Cloud and 200d SMA. See Figure 1 below. Thus, although the weight of the evidence is Bearish, the index has yet to break below $17750. When it does that, it increases the odds it topped for the potential black W-3 in March and is heading for the ideal black W-4? target zone of $15900+/-200.
Figure 1. NDX daily chart with detailed EWP count and technical indicators
Thus, our preferred EWP count is for a larger top to have formed, contingent on holding below the colored warning levels shown in Figure 1 above.
However, in a five-wave ending diagonal, the wave structure is most often a 3-3-3-3-3 count as all five of the waves of an ending diagonal break down to only three waves each, indicating exhaustion of the trend. Also, Wave 3 is not the shortest, and Wave 1 and Wave 4 may overlap. Most ending diagonals have a wedge shape where they fit within two converging lines. In Figure 2 below, we can see that the possible W-i, ii, iii, and iv thus far are all made up of three waves and that W-iv overlapped with W-i, whereas the two grey trend lines thus far contain the price action. Thus, our alternate EWP count is that the price action is ticking off all the boxes for an ending diagonal, contingent on holding above the colored dotted warning levels. These levels are so close to the current price that the Bulls are walking a tightrope while playing with fire, which is why we view it currently as our alternative.
Figure 2. Daily NDX chart with detailed EWP count and technical indicators
Moreover, even if we see a last grey W-v materialize to ideally $18615, the black W-4? still looms after it. Thus, that would make for a 640p reward vs. a 2000p risk—something to consider. Lastly, please note that a break below the October 2023 low tells us the bull market is over.
