$NQ #NQ #Elliott Wave #trading setup #Head and Shoulders
In my evening update yesterday I posted a chart showing the Red Box that was expected to stop the rally:
This morning NQ made a slightly higher high and then dropped hard out of the Red Box.
Before we discuss the path NQ can take I would like to zoom-out to a daily chart:
This morning NQ made a higher high and hit a dense cluster of resistance levels:
- a 66.7% retracement of teh preceding five wave down move, and
- a 500 simple day moving average on a 240 min chart, and
- a 176.4% ext of the subwave -a- up off the late Sep low, and
- the red trend line that stopped three previous attempts of bulls to break out.
The bearish count does not allow bulls to make any higher highs over the morning top.
Macro wise that bearish wave count argues for a new large leg down targeting 14,000 – 13,500.
Micro wise we have been watching an unfolding bearish reversal Head and Shoulders structure:
When we expect a big reversal I always expect price to follow the textbook Head and Shoulders pattern.
Remember, topping is a process. Several cycles that drive price top at different times. This is why the Head and Shoulders or Wyckoff Distribution patterns can be found on stock charts. You can read my blog post explaining how different cycles top at different times creating a sequence of highs that together comprise a rounded top.
On the char above you can see that price may re-test the neckline 15,258 and pop up again to re-test the Left Shoulder ( 15,380). That setup would allow bears to attack 15,000.
You should be aware of is a low probability bullish micro count:
Once in a while we get that tricky corrective wave -iv- down shaped as the Expanding Triangle structure:
That type of a triangle is composed of five micro waves and each successive wave is bigger than the preceding one. If that scenario is in play that would mean the sharp drop on Thursday was a micro wave -iv- down that will be followed by another rally in a wave -v- up targeting another higher high.
If we do not get a deep pullback overnight / tomorrow to the neckline as expected by the bearish micro then that would be an argument in favor of that “one more push higher” scenario.
I hope hat tricky expanding triangle scenario will not play out because we got a very clean topping structure. However, I am a big fan of a multi scenario analysis and sometimes the low probability scenarios prevails. It always helps to be mentally prepared for the worst case.
Interestingly, according to Wyckoff Distribution pattern, the true bearish reversal often happens after (i) bulls invalidate the classic and widely watched bearish Head and Shoulders, then attempt a breakout over the head of the H&S structure and, finally, fail and let bears to push price back under the Left Shoulder: