The Elliott Wave Principle (EWP) is a tool used to forecast financial markets like the NASDAQ100 (NDX) by identifying potential market paths based on known patterns and specific price-based rules. In a recent update, it was predicted that NDX could experience a retracement rally back to around $19300-800, which has since occurred with the index peaking at $19938 on August 22. However, the index has now dropped back to the $19400s, leading to the question of whether the countertrend rally is over.
As NDX continued to move higher following the previous update, warning levels were adjusted to indicate when further upside potential would become less likely. The index has now dropped below the first warning level and is holding near the second warning level. A daily close below this level could signal the start of the next leg lower, with a break below $19450 being a significant bearish sign.
The Elliott Wave count from the critical October 2022 low to the July high indicates five larger waves, with the rally from the October low to the November high labeled as a leading diagonal 1st wave and 2nd wave decline. The subsequent black W-3 waves are currently unfolding, with the possibility of the count starting after the December 2022 decline, suggesting a more significant 4th wave in progress.
In order to confirm the bearish view, the index must not break above last week’s high, as that would result in five waves on the chart instead of three. This would indicate that the August 5 low was the black “alt: 4” low, according to the Elliott Wave count. Despite reaching the target zone outlined in early August for the retracement rally, the preferred long-term view remains one of a significant top being in place since July, requiring further confirmation from the Bears.
Overall, the Elliott Wave Principle provides valuable insight into the potential paths and patterns that financial markets like NDX may follow. By analyzing these patterns and adhering to specific rules, traders and investors can make more informed decisions when navigating the markets. As the NDX continues to fluctuate, it will be essential to monitor key levels and signals to determine the likelihood of further upside or a potential trend reversal.
