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Three weeks ago, we found using the Elliott Wave (EW) Principle that the NASDAQ100 would ideally top out at around
“$22237, which is a typical W[ave]-iii/c target. This suggests that the index is currently in the gray W-iv, ideally around $20995, before the gray W-v ideally reaches its 200.0% Fib extension at approximately $23095.”
Fast forward, the index had already peaked on June 11 at $22041, bottomed on June 23 at $21532, and reached a new all-time high (ATH) at $22915 yesterday. See figure 1 below. Therefore, the index closely followed the forecasted wave iii, -iv, -v pattern, coming within 0.88%, 2.55%, and 0.78% of our ideal targets, demonstrating the accuracy and reliability of proper EW application. The 4th wave was slightly shallower than “ideal,” but as the saying goes, “downside disappoints in bull markets.”
Figure 1. NDX daily chart with our preferred Elliott Wave count and several technical indicators
Furthermore, as the index increased, we adjusted our warning levels for the bulls accordingly. Blue indicates the first warning level for the bulls, also known as a radar lock, at $22733. Gray represents the second warning level, called a shot across the bow, at $22587. Orange marks the third warning for the bulls at $22386, and red signifies the point where the ship sinks, so to speak; then we move to the alternative EW count, currently at $21532. These levels help keep traders on the right side of the trade for as long as possible, so we don’t have to worry about a shallower 4th wave than ideal or not. Namely, if the orange or red levels are not breached, we can continue riding the upside regardless of any news or other factors.
Understanding our position in the market’s shifting waves is essential, as it helps us set realistic expectations. Specifically, a trader’s main goal is to identify the most profitable wave patterns, such as a third wave or a C wave. In this case, the 3rd wave (green W-3/c) is approaching its end, one way or another, but aside from the fact that the (gray) target zone has been reached and there are negative divergences on the technical indicators (red dotted arrows on the RSI5, MACD, and Money Flow); we have no objective, i.e., price-based, signal yet indicating it is over. Therefore, we remain in the market.
Therefore, although we cannot predict or rule out any extension of the wave from the May 26 and June 23 lows, we expect the green W-3/c to finish in the next few days. Since Elliott Wave (EW) analysis is based on price action, we don’t need to second-guess; instead, we can rely on our warning levels to identify when the next corrective phase—the green W-4—begins.