Is a Local Top for the NASDAQ100 Forming?

The Anticipated Drop Fell Well Short Of Expectations

We hope everyone has had a wonderful, shortened Thanksgiving Week with family and friends last week. As such, our usual update every two weeks is a week later than normal, and a lot has happened since our last update on November 7. Namely, back then, we were looking for the NASDAQ100 (NDX) to

“…top out soon, ideally around $15500+/-100, before a multi-day correction (green W-2) down to ideally $14600+/-100 kicks in… Once green W-2 completes, green W-3 to ideally $16450+/-100 will ensue.”

The index peaked at $15382 two days later. It then dropped that same day to only $15171. A meager 1.4% intra-day correction. It is still the largest since the October 26 low, which does not give us much to work with. Now, the NDX has rallied to as high as $16119.

Hence, our forecast for a local top, drop, and rally was correct, albeit the drop was much smaller and shorter than anticipated. It happens; we cannot foresee everything, and since the market doesn’t owe us anything, we must acknowledge that no system, pundit, or analyst can be 100% accurate. If anyone is under the impression that one must always be right to succeed in the markets, let me disabuse them of that notion. Market analysis is not an exact science. If one approaches the markets as if it is, one’s portfolio will be in big trouble.

Figure 1. NASDAQ100 daily resolution chart with technical indicators and detailed EWP count.

That said, from the green W-2 low made on November 9, the index has completed five (grey) waves up, following a standard Fibonacci-based impulse pattern rather well. See Figure 1 above. W-iii, iv, and -v all reached the ideal target zones. Hence, the green W-3 can be considered complete at last Wednesday’s high. There are enough scribbles at today’s low to suggest that the green W-4 is done, but we must see a daily close above $16120 to be more confident that is the case. Then we will look for $16315-620 for the green W-5 of the red W-v of the black W-c/3.

Price Levels The Bulls Must Hold

However, Figure 2 below shows that the green W-4 can become more complex. Today’s low and rally could have been grey W-a, -b, respectively, and grey W-c to ideally $15750 is about to commence. It requires a break below today’s low to confirm this scenario.

Figure 2. NASDAQ100 hourly resolution chart with technical indicators and detailed EWP count.

Note there are a lot of negative divergences (red and orange arrows on the daily and hourly chart, respectively), suggesting the uptrend is losing momentum and strength, supporting the case for a pullback, but those are conditions, not triggers. Price is the final arbiter and trade-trigger. Thus, the Bulls would want to hold $15738 or risk facing closure of the November 14 gap open at $15535.

Moreover, a drop from current levels below the November 9 high at $15382 will tell us a much more significant pullback to ideally $14500+/-100 is most likely underway before we can see another substantial rally. Lastly, a lot can and will happen between our updates. It, therefore, pays to stay informed more regularly than, at best, every other week.