NQ-Daily-Weekend-10-18-2020

NQ - not only the bullish but even one bearish scenario argue for one more push higher

Looking at the micro structure of this rally that started at the mid March low it is very difficult to conclude that rally has topped.

The acceleration of the rally we saw in August 2020 is what normally happens at the top of wave -3- up but not in wave -5- up. The final move up in wave -5- up normally produces negative divergencies in many oscillators because that move does not come that strong.

That observation lets us make an important conclusion that bulls should be able to push NQ higher to a new All Time High in wave -5- up.

But the question remains whether wave -4- down bottomed at the low made at 10,656.50 on Sep 21st, 2020.

On the bullish chart shown below I labelled that low as -4- down. Under that Bullish scenario Bulls will keep pushing NQ higher in a micro wave -v- up until they reach the previous high made by wave -3- up at 12,452 (on Sep 2nd, 2020). They can even slightly exceed that high in subwave -A- of wave -5- up. Then a corrective pullback in subwave -B- down should off that “Double Top” formation.

NQ - Daily "Bullish" chart updated at 10-00 PM on 10-18-2020

On the bullish chart shown above I labelled that low made at 10,656.50 on Sep 21st, 2020 as the bottom of wave -4- down.

But that low could be only the first leg down in subwave -A- of wave -4 down! That consideration brings us to the Bearish count shown below.

Look how shallow was wave -2- down that bottomed at 8,801 on May 4th.

It retraced only 12% of the preceding move up in wave -1- up.

Ian Copsey came up with a very interesting guidance about corrective waves -2- and -4-.

He noted that the sum of their retracement ratios varies from 80% to 120%.

For example, if wave -2- down retraces 61.8% then wave -4- will not retrace more than 120% – 61.8% = 58.2%

In that case is wave -2- down was a super shallow 12% retracement then wave -4- down should be at least 80% – 12% = 68%. Because the first move down that bottomed at 10,656.50 on Sep 21st, 2020 retraced only 44.1% we can conclude that based on that guidance that could NOT be all of wave -4- down.

However, please bear in mind that this observation is a Guidance, not a hard rule.

Below I show you the Bearish scenario that argues for another leg down in subwave -C- of wave -4- down:

NQ - Daily "Bearish" chart updated at 10-00 PM on 10-18-2020

Waves -B- is extremely difficult to trade and analyze because they are corrective waves but at the same time they point in direction of the main trend!

Look, NQ dropped in an impulsive wave -A- down and the move up is just a correction to that drop.

But because that corrective wave points up, in the same direction that the market has been following for years, that corrective move may not only re-test the previous to made by wave -3- up at 12,452 on Sep 2nd, but even slightly exceed it.

How we should trade wave -B- up then?

Well, we may attempt to identify its (a)-(b)-(c) up internal structure and wait for signs of completion of the final subwave (c) up.

If we zoom-in to 30 min chart of NQ we can quickly identify a corrective looking (a)-(b)-(c) up structure of that move up that started off the early Sep’20 low.

Can we consider subwave ( c ) up of wave -B- up having topped?

Well, that move up has tagged and turned down off a meaningful 85.4% retracement of the first move down labelled as -A-.

However, subwave ( c ) up is supposed to have an impulsive count. It is supposed to be composed of five micro waves that we should be able to identify. And if I was looking for a perfect five wave up micro structure of that subwave ( c ) up I would say the recent top could only be a micro wave iii up followed by a deep wave iv down.

NQ - 30 min "Bearish" chart updated at 10-00 PM on 10-18-2020

Because I can not get a perfect textbook five wave up micro structure in that subwave ( c ) of wave -B- up I have to consider and present you below that alternative Bearish-2 count where NQ should stretch higher in a micro wave v up even under the BEARISH scenario.

If we focus on the micro structure of subwave (c) of wave -B- up we may argue that NQ needs to make one more higher high in -v- of ( c ) of -B- up.(edited)

Unfortunately, from time to time we do not have a clear vision about what would be the next move. At this moment we do not have enough evidence in favor of any of those two scenarios to be able to confidently conclude that “NQ has topped in wave -B- up” or “NQ will surely make OMH”.(edited)

What we can say is that as long as bulls hold NQ over the last low made at 11,746.50 made on 15 Oct 2020 they remain in control.

If bears manage to break under that low the probability of “One More Higher High” scenario will get very slim.

Do not forget we do have the Bullish scenario on the table that also argues for one more push higher as long as NQ holds over 11,682 (on a daily close basis) (see the very first chart above).

NQ - 30 min "Bearish-2" chart updated at 10-00 PM on 10-18-2020

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