U.S NASDAQ Stock Index

[PCMNewsdesk]

The NASDAQ will probably push higher along with the blue-chip indexes, but we are less sure in this venue as it is possible to label the rally from 3979.50 (Dec. 18) as complete. Support is 4125 and 4100-4105. If there is any additional near-term decline, either level could see renewed buying interest. A close below 4050 would begin to shift the odds toward an even larger and longer selloff.

[PCMNewsdesk]

It's possible to label a complete five-wave rally in the NASDAQ from the October 9 low at 3650 but it's not certain that the fifth wave is quite over. The decline from the 4177.70 high on December 31 is only three waves so far. If the decline can morph into five waves, the evidence will grow stronger that the December 31 high is of more importance. The larger wave structure remains open to differing wave labels so we will continue to focus on the portion of the structure that is clear.

[PCMNewsdesk]

The January issue of The Elliott Wave Financial Forecast discussed the "polar shift in mood" that will transform the entire realm of social media. As paraphrased from Prechter's Perspective, instead of "we" and "friends," a bear market in mood will turn the face of social media toward "they" and "enemies." Social media itself will be used as a tool to express people's sudden new-found anger. One of the main ways to judge when the shift is occurring is by keeping track of the various social media stocks and indexes. We showed two of them in the new EWFF issue (see charts, p.4). The chart above shows the wave structure in Facebook since the IPO last May. The advance from the 17.55 low on September 4 may be labeled as five waves. Waves (5) and (1) are equal in length at the 58.58 high (+.08) on December 24. Two other wave relationships occur at 66.58-67.74. If wave (5) is not complete, it will likely rise to this secondary range to finish all the sub-waves. A complete upward structure will mark the onset of a major price retrenchment for Facebook's shares, which would be one more sign that the concept of social is taking on a whole new meaning.

The NASDAQ has been the downside leader during the first days of this new year, but the wave structure remains open to differing interpretations. At the moment, there are only three waves down from the December 31 high at 4177.70 in the Composite and 3592.00 in the 100 index. The bounce from this morning's low may be wave iv, as shown on the hourly chart of the 100 index. If so, it will end below 3556.57, the wave i low, and lead to wave v down toward at least 3487-3494. A five-wave decline from the December 31 high would strengthen the case that the NASDAQ is starting a deeper and far more protracted selloff. Absent "five down" on the charts, the NASDAQ's rally will extend to new highs.

[PCMNewsdesk]

The NASDAQ’s action off its December 31 high is ambiguous, as it appears to be three waves in both directions. We will have to wait for further subdivisions. With the other major indexes displaying acceptable patterns, a viable impulse wave down from the highs, 4177.70 in the Composite and 3592.00 in the 100, may still appear. A break back above these levels will signal that the NASDAQ indexes are diverging higher.

[PCMNewsdesk]

The NASDAQ Composite jumped back to the top trendline today, as shown on the daily chart. Prices carried to 3965.50, just shy of the October 30 high at 3966.70. The sub-waves of the advance from 3855.00 (Nov. 7) appear to need another "down-up" sequence before the near-term structure is complete (see 30-min. chart), similar to the hourly S&P chart above. So odds are the Composite will make a new high prior to the rally's end. A break below 3899.30, today's low, would eliminate the rally potential and instead indicate that the late-October high was indeed the end of wave 5.

[PCMNewsdesk]

The NASDAQ indexes also confirmed the Dow's decline, falling hard today and moving below the intraday lows on January 6. Today's decline leaves in place an inter-market divergence at the recent highs, as the NASDAQ 100 index topped at 3592.00 on December 31 and made a lower high on January 9 as the Composite was making a new high (4182.70). It's only been two days since, but both indexes fell far enough to take back last week's entire advance. Similar to the Dow, if a trend reversal has occurred, the selling pressure should remain persistent as prices work even lower. The next short-term downside target for the Composite is 3980-3990, which is 3410-3420 in the 100 index. Today's highs should not be exceeded, otherwise the entire pullback has been an "a-b-c" and the trend toward higher prices remains intact. These levels are 4179.40 in the Composite and 3572.40 in the 100 index.

[PCMNewsdesk]

Today's rally erased the inter-market non-confirmation between the Composite and 100 index and carried both indexes to new recovery highs. Today was the second day of an up-gap open and both NASDAQ indexes are back at their respective upper channel lines. The Composite sits a few points shy of its line at 4226, while the 100 index is a few points above its line at 3609. These lines cross 4230-4235 (Composite) and 3613-3617 (100 index) for the remainder of the week. The rally remains stretched like a too-taught rubber band. Over the 19 months starting in June 2012, the Composite has closed the month higher 84% of the time. Since the October 2011 low, the Composite has closed the month higher 74% of the time. Bear markets always unfold faster than bull markets so the first leg down of the next bearish wave will likely take back a good portion of the prior rally in short order. We hope to identify its start.

[PCMNewsdesk]

[PCMNewsdesk]

The NASDAQ indexes remained well above last Monday's lows (Jan. 13), which kept the uptrend intact. Both the Composite and the 100 index pushed to new highs yesterday and today. The Composite is back at the top line of its 7-month channel from June 2013 and is less than 30 points from a resistance target, which surrounds 4271.30. The 100 index closed right on its top channel line at 3627.72. The advance from November 2012 has taken the shape of an exponential upward-curving bowl, similar to the final move to the March 2000 peak. This form indicates strongly that the initial bear-market leg lower will be very steep in the NASDAQ indexes. First, the market must break the succession of higher highs and higher lows, which will occur with a close below the January 13 lows at 4097.90 (Composite) and 3499.37 (100 index) respectively, signaling a near-term trend reversal.

[PCMNewsdesk]

While it is not clear how to properly label the prior waves of rally in the NASDAQ indexes, it is clear that both the Composite and 100 index are tracing out five-wave declines from their respective highs on Wednesday (Jan. 22). This 30-minute chart shows the structure in the NASDAQ Composite. This impulse wave indicates that at the least, the one-larger degree trend is now down. Wave ii (circle) up, when it starts, will be the largest bounce since prices started falling on Wednesday. The NASDAQ has closed most prior gaps, but not all. The current wave structure suggests that wave ii (circle), at best, will close the gap left at yesterday's close of 4218.80 (Comp.) and 3613.76 (100 index). If the larger trend has reversed in a significant manner, surprises will now occur to the downside, a complete character change from the past five years. The near-term decline is oversold, but the larger trend is down.