NASDAQ Big Picture Update

The NASDAQ has IMHO two major options according to my Elliott Wave analyses:

  • Cycle-3 topped in 2018 and Primary-C of Cycle-4 (C4) gets going to ideally around $6000+/-500 (Figure 1) or,
  • Primary-V is underway in an ending diagonal fashion to complete Cycle-3 (C3) at around $9500+/-250 before Cycle-4 sets in (Figure 2).

I fully understand both are diametrically opposed, but remember the markets always leaves its options open. So, to better know which one of these two options has the highest potential (probability in statistical terms) and which thus should be preferred, we can use technical analyse.

Figure 1: Cycle-4 underway forming a -typical?!- (irregular) flat correction, which fits well with the “rule of alternation” as Cycle-2 was a zigzag.

As you can see in Figure 1, price is firmly above its rising 50m and 200m SMAs, as well as above its 20m SMA (not shown, but now at $7,555), with the 20>50>200m SMA. Thus, the NASDAQ is firmly in a long-term uptrend: Cyclical Bull market. As such, any move down should be viewed and treated/traded as a correction within this multi-decade uptrend until it changes, which is for starters a monthly close below the 20m SMA.

With those positives out of the way, the negatives are rather obvious: negative divergences across the board on all technical indicators (red arrows): RSI5, MACD, Money Flow, etc. In addition, there’s been no MACD buy signals since the December rally, making the current 7 month rally suspect. Since these divergences are on the monthly time frame, they carry a lot of weight and should “echo through” the price charts more so than if they would be on the daily time frame. Lastly and as an FYI: the S&P500 and Dow Jones Industrial Average have the same chart setup (but not necessarily the same big-picture Elliott wave count), adding weight to the evidence.

Thus, the technical indicators support a leg down and not up as then we would most likely have positive divergences to signal the next leg higher. For those who follow and like OEW, please note that the Elliott wave count shown in Figure 1 adheres perfectly to the big-picture parameters OEW has set forth to identify Primary waves, and Figure 2 below further explains why -therefore- the NASDAQ is in a different big-picture Elliott wave count then the S&P500.

Figure 2: Primary-V of Cycle-3 could still be on going and form an ending diagonal (hence all the negative divergences), but the Elliott wave count shown in Figure 1 makes more sense based on these divergences AND even applies to all OEW rules.

Bottom line: The technical analyses currently favors the Elliott wave option shown in Figure 1: an irregular flat Cycle wave-4, which would nicely alternate with the zigzag Cycle-2 wave. This count adheres to OEW’s big-picture “rules” and also complies with a correction within a much larger Bullish uptrend.

I am well-aware that the $6000+/-500 target zone is rather large, but at this stage I simple don’t have enough price data available to narrow it down. Namely, irregular flat corrections can take on three different forms where wave-c=wave-b (targeting the December lows); wave-c<b<a (targeting above the December lows); wave-c>b>a (targeting below the December lows). It is impossible to know with all certainty now which of these three options it will be. The great thing about Elliott wave is that we can anticipate these options and eliminate them one by one as price gives us more clues going forward.

For now and shorter-term we do have to content our selves with a possible symmetrical triangle formation. See Figure 3 below. IF this pattern is indeed the one that is forming (a close above the upper red down trend line will negate this pattern) then we should be looking for -using QQQ for form- at least around $173 + -/1, possible as low as $168+/-1p but I prefer to be conservative at first, before we see a next bigger and complex bounce.

Figure 3. Is a text-book symmetrical triangle forming on the QQQ?! If so, $174-167 should be next on a break down.

Trade safe!

Arnout, Ph.D.

Founder and President Intelligent Investing, LLC 
Vice President NorthPost Partners, LP

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