Technology is the strongest sector in the current bullish trend in World Indices. Nasdaq (NQ) which has a lot of technology stocks naturally is one of the best performing Indices. We had some pullback in the Indices last week. As always, with every pullback, many traders and analysts start to speculate if major top is in place.
We will look at the chart of Nasdaq to answer this question. We start with the idea that Nasdaq is in an impulsive structure from all-time low. That should be very clear as the Index makes new all-time high and continues to make higher high. For an impulsive structure to end, we need to be able to count a clear 5 waves. In addition, we should see the fifth wave losing momentum and thus we need to be able to observe a momentum divergence.
Let’s now look at the Daily Chart of Nasdaq below and focus especially on the rally from March 2020 low.
Nasdaq Daily Elliott Wave Chart: Path 1
In the daily chart above, we can see the all-time high in Nasdaq came without any momentum divergence. The RSI (Relative Strength Index) shows the strongest momentum peak at the same time when the Index makes all-time high. Thus, we can conclude that the previous all-time high is unlikely to be a wave V from March 23 low. One possibility then is to label the previous all-time high to be wave III. In this scenario, the Index should be in wave IV in 3, 7, or 11 swing before it resumes higher again.
Assuming the placement of wave I and II is correct, potential target for wave IV is 23.6 – 38.2 Fibonacci retracement of wave III which is 10508 – 11249. This is a guideline for where wave IV usually ends, but not a rule. Also as a guideline, it’s better for wave IV not to retrace more than 50% of wave III or else it becomes too big and no longer be a wave IV. A 50% retracement of wave III is 9910. Nasdaq last week has already hit 23.6 retracement at 11249. Thus in fact, the Index can start to make new high again from here. However, it can still do a double correction and perhaps reach around 38.2 retracement at 10508 area before ending wave IV and resumes higher again.
Nasdaq Daily Elliott Wave Chart: Path 2
Let’s assume for a moment that Nasdaq is doing larger decline. If it drops more than the proposed 50% of wave III at 9910 like the first chart above suggests, it will increase the chance it’s no longer a wave IV. In this scenario, Nasdaq perhaps has ended cycle from March 23 low as a corrective structure ABC. The reason is because there’s no momentum divergence at the peak and thus the structure of the rally is likely not a 5 waves.
However, since Nasdaq is at all-time high and thus the entire rally from all-time low has to be impulsive, the Index can’t possibly end the entire impulsive structure with 3 waves structure. Thus, in case of a bigger pullback, another path can be that Nasdaq rally from 3.23.2020 low is in an ending diagonal structure. In this case, the rally from 3.23 low ended wave (I). We can then see a larger pullback in wave (II) to correct cycle from March low before Index resumes higher again.
FURTHER DISCLOSURES AND DISCLAIMER CONCERNING RISK, RESPONSIBILITY AND LIABILITY Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of xperience and risk appetite. Do not invest or trade capital you cannot afford to lose. EME PROCESSING AND CONSULTING, LLC, THEIR REPRESENTATIVES, AND ANYONE WORKING FOR OR WITHIN WWW.ELLIOTTWAVE- FORECAST.COM is not responsible for any loss from any form of distributed advice, signal, analysis, or content. Again, we fully DISCLOSE to the Subscriber base that the Service as a whole, the individual Parties, Representatives, or owners shall not be liable to any and all Subscribers for any losses or damages as a result of any action taken by the Subscriber from any trade idea or signal posted on the website(s) distributed through any form of social-media, email, the website, and/or any other electronic, written, verbal, or future form of communication . All analysis, trading signals, trading recommendations, all charts, communicated interpretations of the wave counts, and all content from any media form produced by www.Elliottwave-forecast.com and/or the Representatives are solely the opinions and best efforts of the respective author(s). In general Forex instruments are highly leveraged, and traders can lose some or all of their initial margin funds. All content provided by www.Elliottwave-forecast.com is expressed in good faith and is intended to help Subscribers succeed in the marketplace, but it is never guaranteed. There is no “holy grail” to trading or forecasting the market and we are wrong sometimes like everyone else. Please understand and accept the risk involved when making any trading and/or investment decision. UNDERSTAND that all the content we provide is protected through copyright of EME PROCESSING AND CONSULTING, LLC. It is illegal to disseminate in any form of communication any part or all of our proprietary information without specific authorization. UNDERSTAND that you also agree to not allow persons that are not PAID SUBSCRIBERS to view any of the content not released publicly. IF YOU ARE FOUND TO BE IN VIOLATION OF THESE RESTRICTIONS you or your firm (as the Subscriber) will be charged fully with no discount for one year subscription to our Premium Plus Plan at $1,799.88 for EACH person or firm who received any of our content illegally through the respected intermediary’s (Subscriber in violation of terms) channel(s) of communication.