U.S NASDAQ Stock Index

[PCMNewsdesk]

Friday we showed a 30-minute NASDAQ Composite chart to illustrate the wave labels. Tonight's 30-minute chart is the NASDAQ 100 index. The larger-degree pattern remains difficult to label but the decline from the January 22 high appears to be an impulse wave and today's low at 3482.89 makes the point decline from the January high the largest since the May-June 2013 selloff. As noted, this means that the larger degree trend has turned down. Similar to the blue chips, it is best to consider today's bounce as wave (iv) of i (circle). The index retraced 38.2% of wave (iii), so wave (iv) could be complete. Modestly higher resistance is 3549-3564. As we said Friday, the decline is oversold but the main trend is down.

[PCMNewsdesk]

On Monday, the alternate count on this 30-minute chart of the NASDAQ 100 considered the first wave, wave i (circle), complete, but that possibility is eliminated by today’s sell off. Monday’s STU noted, “The index retraced 38.2% of wave (iii), so wave (iv) could be complete.” This turns out to be the case. The gyrations since then are probalby just the initial, thrusts of wave (v). It will take a rise through 3537 to alter this count. In any case, the January 23 wave (i) low at 3588 should hold.

[PCMNewsdesk]

As noted here on Wednesday, the key level in the [NASDAQ 100] is the January 23 low of 3588. As long as this holds, the NASDAQ indexes will be considered to be on course for a hard fall. The index managed to close a gap from yesterday’s close, but it then sold off in a move that could be the start of the next move lower. Yesterday’s high at 3544.21 has more immediate bearish implications. Barring a rise through this level, the very near-term outlook for the NASDAQ 100 is bearish.

[PCMNewsdesk]

The NASDAQ's rally appears done, too. The exact wave labels remain a challenge on a near-term basis, but a long-term chart shows a big "A-B-C" rally in the Composite from October 2002. The "C" wave carried to just shy of a 78.6% (sq.rt. of 61.8%) retracement of the decline from the March 2000 peak as well as the top line of a channel encompassing all of wave "C." Tonight's chart shows that after testing the top line of a shorter-term channel on January 22, for arguably the Fibonacci 13th time since last October, the NASDAQ started a new downtrend. The Composite has closed below the lower channel line for the first time since June of last year. The 100 index sits just above its equivalent lower line. Whatever rally develops should amount to a partial upward retracement of the late January decline. The NASDAQ has a lot of catching up to do and should be one of the leaders during the next major wave down.

The S&P Small Cap 600 Index appears to have a similar channel as the NASDAQ indexes. The top line was formed by the end points of each wave up since May of last year. The decline from the 668.70 peak on December 26 is impulsive (i.e., five waves) and the index has broken strongly below the lower channel line. Whenever a rally starts it may carry prices back to the underside of the lower line, but the "five down" form of the selloff indicates that it should amount to only a countertrend advance. Here too, this index should be another leader in the large wave down.

[PCMNewsdesk]

If the Dow and S&P soon start a second wave rally, the NASDAQ will rally too. But the wave structure in the NASDAQ is not a clear as the Dow and S&P. Once we confirm that the initial wave down is complete, the Composite is likely to carry back to at least 4000-4100, while the 100 index should rise to at least 3500-3535.

[PCMNewsdesk]

The NASDAQ's potential remains a challenge to forecast. Whereas the blue-chip indexes sport five wave declining patterns, the NASDAQ appears to have only three waves down from its high (4246.50 in the Composite and 3634.65 in the 100 index). Does this mean that the NASDAQ will rally to a new high as the Dow and S&P complete their second wave advances? Or is it possible that the NASDAQ is tracing out an upward expanded flat (see text, p.46), in which case they will make a high before the Dow and S&P and turn down into a third wave? I don't have strong conviction either way so I don't have a forecast tonight. In Monday's STU we'll see if the odds have swung one way or the other.

[PCMNewsdesk]

As noted Friday, the NASDAQ indexes have traced out three-waves down from their respective highs at 4246.50 in the Composite and 3634.65 in the 100 index. Three waves unfold counter to the one larger trend, so the simplest explanation is that while the Dow and S&P undergo deep upward retracements for wave ii (circle), the NASDAQ indexes will push to new highs. Another possibility is that the NASDAQ is ending a countertrend rally near current levels after tracing out an upward expanded flat (see text, p.46). This implies that prices will soon start a strong decline that draws them well below last week's lows at 3968.10 (Composite) and 3418.88 (100 index). Usually the simplest explanation is the best, which is the top one described above. But if the indexes start declining hard over the next day or so, we will more seriously consider this option.

[PCMNewsdesk]

The NASDAQ 100 made a new high but the NASDAQ Composite has not, so far. If the market's rally is ending now, the topping sequence would be the same as that which occurred at the October 2007 top and the 2000 top. At both peaks, the NASDAQ was the last index to make a high and then rolled over to join the blue-chip indexes in a decline.

[PCMNewsdesk]

Of the U.S. market's major indexes, the NASDAQ currently stands alone at a new high. The Composite has carried to a Fibonacci 21 points (20.4) from the 78.6% retracement of the decline from the March 2000 peak. The first downside gap in is 4148.10 (Feb. 10) and filling this gap will be the initial indication that the rally is complete.

[PCMNewsdesk]

The stock rally continued today in the NASDAQ and S&P. Today market the 8th consecutive higher close for the NASDAQ, creating an overbought condition. However, the Dow Industrials and Dow Transports were down on the day. This diverging behavior is reflected in the market`s internal measures, which were tepid. In terms of advancing issues relative to declining issues and advancing volume relative to declining volume, today`s rally was the third weakest since the February 5 low. Incredibly, the 15-min. NYSE Tick divergence has remained in place since the morning of February 11. None of these measures are bullish but the pattern today in both Dow and S&P today appears to be a small-degree fourth wave. The implication is that there will be another upward push, either tomorrow or Thursday, after which stocks will be at another juncture whereby a more substantive decline could begin. A coordinated decline below the February 13 lows at 15,863.20 in the Dow and 1809.22 in the S&P would negate the idea that stocks had traced out a small-degree fourth wave. A five-wave decline from the recent highs in conjunction with expanding downside breadth and volume would indicate a change of trend for the market.