Last Sunday I discussed my Primary Bearish count for ES in a weekly report.
I concluded that the rally off the mid March 2020 low can be considered a temporary pullback in a corrective subwave ( B ) up to be followed by another impulsive decline in subwave ( C ) of wave ( 4 ) down.
This Sunday I reviewed a structure of the rally in Nasdaq that started off the 2002 low.
My main goal was to find a good count that could explain the rally off the mid March 2020 low that managed to make a higher high over the Feb 2020 top.
Nasdaq Composite index covers all stocks listed on the Nasdaq Exchange. The stocks traded on the Nasdaq Exchange and listed on other Exchanges are not covered by the Nasdaq Index. NASDAQ 100 index comprises the top 100 strongest stocks on the Nasdaq Exchange. NQ futures are linked to Nasdaq 100 index.
Nasdaq has been moving up in a macro rally that started off the lows made in October 2002:
The first leg up in wave ( 3 ), its subwave ( A ) topped in July 2015.
After a shallow corrective subwave ( B ) down, structured as A-B-C, the second stronger part of the rally in subwave ( C ) of wave ( 3 ) up started:
This chart has a very clean count. The top made in Feb 2020 looks like a clean top of wave ( 3 ) up.
And it is very difficult to make a case that quick yet deep drop in March 2020 was all of wave ( 4 ) down.
Most likely it was only subwave ( A) down, the first leg down in a corrective macro (A)-(B)-(C) structure.
Then the rally that followed can be counted as a corrective subwave ( B ) up of wave ( 4 ) down.
Let’s add retracement fibs to the wave ( 3 ) up. Remember, wave ( 4 ) is a reactionary wave to the preceding impulsive wave ( 3 ) up. Hence, the major metric for that corrective wave is how much of the preceding impulsive wave it can retrace.
For any wave ( 4 ) the most common target is a confluence of:
– the low made by wave 4 of ( C ) of ( 3 ), the low of the previous corrective wave of one degree lower, and
– 41.4% or 44.1% retracement of the preceding rally in wave ( 3 ) up.
In this case we have a perfect confluence of those two levels at 6,190. That means re-test of the low made in December 2018.
That essentially means 40% correction in Nasdaq.
It sound apocalyptic but let’s look at two previous drops.
In Dec 2018 Nasdaq dropped by 24% off the top made in Sep 2018.
In March 2020 Nasdaq dropped by 32.6% off the top made in Feb 2020.(edited)
In 2009 Nasdaq dropped by 55.8% off the top made in Nov 2007.
Now let’s see what that scenario means for NQ (see the chart below).
If the top made by Nasdaq in Feb 2020 was the top of a macro wave ( 3 ) up then:
– the drop into mid March 2020 structured as A-B-C down was subwave ( A ) of wave ( 4 ) down; and
– the move up off the low made in mid March into June 2020 high was a corrective pullback in subwave ( B ) up.
We can identify A-B-C structure behind that March – June 2020 rally.
If we zoom-in we can see that this rally either has completed or may stretch a bit higher (see the chart below).
At this point violation of the micro support at 9,728.75 would confirm completion of that rally.
The first important support would be the low made by wave ( iv ) down at 9,368 on June 15th, 2020.
But the real magnet for an upcoming move down would be somewhere in between 50% retracement ( 8,650 ) and the starting point of the last push up in subwave C of wave ( B ) up ( 8,328 ).
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