The Bull Trap Door Has Been Set

Key Price Overlap as an Early Warning

Using the Elliott Wave Principle (EWP) we kept our premium major markets members abreast of the fact if the NASDAQ100 (NDX) were to drop below $15275 a more significant correction would be at hand. It did so in early August, signaling that it was ready for at least the read W-iv? See the purple box in Figure 1 below.

The index then continued its decline and traded over another 2.5% lower, allowing our members to prevent havoc to their portfolio and potentially profit from the further downside. The index is now also below its declining 20d SMA and below its 50d SMA. Thus, the short- and intermediate-term trends have changed from up to down. Meanwhile, the index is within reach of the upper end of the ideal red W-iv? target zone.

Five Waves Lower Signaling a Larger Correction

However, there’s no sign the correction is over, and, in fact, an even more Bearish setup is developing. See Figure 2 below; a more detailed chart of the price action in the purple box from Figure 1.

Namely, it appears an impulse (five green waves) lower has developed from the July high into yesterday’s low. This pattern has solidified the B-wave high is in place, which has been our big-picture primary expectation all along. But we still want to see a five-wave decline (five red waves i, ii, iii, iv, and v) at one wave degree higher, major-1, to be sure. This will set the NDX up for maybe 1000s of points decline well below the October 2022 low.

This may sound bearish to some, but this is the potential ramifications of a more significant 5-wave decline: Major W-1 of Primary W-C. Does that mean this setup is already certain? No, not at all. Risk management must always be respected as the index can still morph into “only” a larger a-b-c, with the W-b back up soon to commence, and then a W-c that can still target the low $14000s… That is why we label things W-a/i, -b/ii, and -c/iii until the a-b-c or i-ii-iii-iv-v is proven.

However, A-waves comprise a 5-wave structure only a minority of times. Thus, a 5-3-5 (zigzag) correction is still possible but less likely. Nonetheless, “less likely” does not equate to “not going to happen,” so we want to see the next higher degree 5-wave decline confirm the bearish count. But, with an initial five waves down, the Bears are now in charge regardless.

If W-B has topped, it has only been days since that happened, and we cannot know the next day after the top that “the top” is in. It takes time for the markets to drop below certain key levels, in this case, $15275. But here we are, only 5% below “the top,” and we already know a much more significant top may be in place. That is a tremendous, as early as it gets, foresight and what can help prevent havoc to one’s portfolio. Or as they say “forewarned is forearmed.”

Lastly, if the index drops below yesterday’s low without reaching the $14450-7530 region first, we will look for the impulse lower to extend to the $14600-14800 region before it can try for another attempt to reach that zone.