NASDAQ 100: The Bull Trap Door Has Been Set
2023.08.15 15:12
Two weeks ago, see ; we found, based on our interpretation of the price action for the using the Elliott Wave Principle (EWP)
“… it appears the grey W-iii and W-iv were completed July 19 and 27, respectively, and the grey W-v to ideally $16110+/-25 is underway. But the index must break above the July 19 high at $15932 to confirm our anticipated W-v while always holding last week’s lows. Namely, a drop below $15375 will be our first signal the red W-c/iii has topped, and the index is ready to embark on at the least the red W-iv? correction to ideally $14400+/-200. That is not our preferred scenario, but in trading, one must always have a contingency plan to prevent havoc on one’s portfolio.”
Fast forward, and the index dropped below $15375 (and $15275) in early August, signaling that it was ready for at least the read W-iv? See the purple box in Figure 1 below.
Figure 1. NASDAQ100 daily resolution chart with technical indicators and detailed EWP count.
The index then continued its decline and traded over another 2.5% lower. Thus, our contingency plan worked and allowed us to profit from further downside.
Last, the index was “still well above its rising and bullishly stacked 20-day Simple Moving Average > 50d SMA >200d SMA, while the MACD is negatively diverging (orange arrow).”
Now the index is 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 now within reach of the upper end of the ideal red W-iv target zone. 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.
Figure 2. NASDAQ100 hourly resolution chart with technical indicators and detailed EWP count.
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, $15375. 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.
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.
