Based on wave price structure rules, I think we still have not finished the bigger second wave lower (red circle) in the NASDQ. We have completed a smaller second wave and are now bouncing into the SLOT resistance.
Breaking above the prior high of this bounce confirms my thoughts that a bigger corrective bounce was unfolding and the above chart is how I think it will unfold now.
If you look at the Volume Profile during the smaller second wave (blue circle) you can see the Point of Control at 6674.25 and a target range (black rectangle) of 6591.50 – 6755.50. A move up into that zone would get above the 50% SLOT level and into the 1.272x – 1.618x extension target zone for minor wave c of the bounce wave.
So where could the bounce end? If you look at the corrective bounce after blue circle wave 1 and extrapolate a bounce the same in size and time, you get the bounce high at 6510.00 that should end around Jan 8th.
My broadening price pattern for TSLA has really helped me over the months/years trade the name … we are back at bottom support and I think a break of that level will spell the death knell for the Company as the convertible debt due in March (I think it is for $900 million) is going to be what brings the company down finally.
TSLA Daily Chart
$300 is the magic number … Can you say “bankwupt”?
You can see from the above chart that we have made a 2-legged move higher off of last week’s low. However, we did not make it into the 1.272x – 1.618x extension target (min target of 6443.25) and we did not make it all the way into the SLOT (50% at 6479.75).
Not making these targets is not an absolute … often when a wave structure fails to complete to the normal levels, you can say it “broke” the normal pattern and that the power/emotion of selling/buying did not allow it to complete.
You do however, need to be aware that the pattern is more complicated than a single ABC corrective wave. That ABC may be just the A-leg of a bigger bounce into the SLOT yet to come. Let me show you …
So there is no guarantee that we are heading down to Wave 2 support right now … we could be setting up a bigger bounce into resistance.
The 61.8% level at 6045.5 needs to hold … the longer we stay above that level, the greater the chance that the bounce higher is not complete.
Going against that type of price structure is the fact that the SPX has completed a two-legged bounce into the SLOT … maybe the SPX will just chop around giving the NASDQ enough time to set up the move back down into Wave-2 support.
If the NASDQ does in fact fail to go lower from here and begins to bounce, I suspect lots of people will say that is a show of strength …. they obviously don’t pay attention to wave structure!!
Is the bounce out of the minor wave 2 low complete? It could be …
S&P 500 Index – 240 Minute Chart
You will see on the 60-min chart below that we have made a 2-legged corrective bounce that made its way into the SLOT resistance from what I think is the minor wave-2 low of last week. That second leg also made it into the 1.272x – 1.618x extension target zone as well. By definition then, price structure rules tell me we are free/ready to head down to the minor wave-3 / major wave-2 support target at 2299.34 (1.272x extension target).
Based on a Wave-2 target of 2299.34, then the final Wave-3 target for me will be at about 2160.
S&P 500 Index – 60 Minute Chart
The above 60-min chart shows more closely the road map for the move into Wave-2 support at 2299.34
Many tv talking heads are calling for US small caps to lead us on to retest prior all-time highs … they say this basically because they think that the US economy is the world’s strongest and therefore, the asset class most exposed to the US consumer will be the defaulted to leader. Is that what is going to happen?
No one knows that ahead of time, but I default to the price structure of the market to tell me the likely path going forward. Let’s look at the small caps to see what the market says …
Russell 2000 Index Futures (RUT) – Monthly Chart
When you step back and look at the monthly chart, you can see a nice 3-wave price structure. The 2nd wave ended just past the 1.618x extension target, telling traders that we were in fact making a 3-wave structure and to expect Wave 3 to terminate in the 1.272x – 1.618x extension target zone. Price did just that.
If the monthly 3-wave structure is complete, then price will carve out a likely complex corrective pattern but in the end, find support in the SLOT drawn using the price anchors of the entire structure.
Let’s look a little closer at the price structure using the weekly charts …
Russell 2000 Index Futures (RUT) – Weekly Chart #1
Each of the 3-waves in the monthly price pattern formed smaller 3-wave structures inside themselves.
Russell 2000 Index Futures (RUT) – Weekly Chart #2
Having completed a nice looking 3-wave structure into the monthly extension target for the bigger 3rd wave gives me confidence that the monthly chart structure is in fact complete and that we are going to work our way down into support and not just pull-back slightly and then go on to make new all-time highs.
You will see on the daily chart below that the 2nd wave in corrective Wave-A made a nice push into the 1.618x extension target, which tells me that price is making a 3-wave price structure lower here in the first leg of the corrective price pattern.
After that is complete, we will bounce into bigger resistance (wave B) and then down into final support for the corrective pattern we are currently in.
Russell 2000 Index Futures (RUT) – Daily Chart
I expect the RUT to bounce with the rest of the market here … I suspect that resistance will be found/respected at around 1425 in the RUT futures contract and then price to head down to about the 1200 level. That level is right around where the bigger 38.2% SLOT support is, where the 1.272x target is for Wave-A’s 3rd wave and where the bottom of the broadening price pattern (see pattern below).
Russell 2000 Index Futures (RUT) – Weekly Chart #3
Bottom Line – No one can tell the future, but if you understand the structure of price waves, you can get a good idea at times about where price is likely to be headed. Based on my read of the wave structure for the RUT, I think we still need to head lower into a bigger layer of support before we can think about trying to go on to new higher highs.
I’m pretty sure that we have put in the low for wave 2 of 3 for both the S&P500/ES and the NASDQ 100/NQ today in the pre-market. I tweeted out the following charts this morning pre-opening of the cash session.
ES Daily Chart – Tweeted Pre-Market Dec 26th 7:44am
The S&P500 Index futures contract made a bounce off of the lower support line from the broadening price pattern I have been following – it hit it to the exact tick!!
NQ Daily Chart – Tweeted Pre-Market Dec 26th 7:53am
The NASDQ100 futures contract almost exactly matched the ES futures contract bouncing off of the lower support line, but missed it with a slight overshoot.
AAPL 30 Minute Chart #1 – Tweeted at 11:19am
I have a fairly large position in AAPL and I have been watching the intra-day charts to for a time to make my final adjustments to my position and I did that between 11am and 11:15am. To me, the 5-min chart was getting ready to launch and the 30min chart looked like it was ready for an upward expansion phase.
The confirmation of the break of the 30min ATR resistance level at around 1:45pm was the final confirmation for me today that we were going to squeeze right into the close of the market.
AAPL 30 Minute Chart #2 – Tweeted at 11:34am
I think we are in a typical 15 to 20-day rally period now and just looking at overhead resistance in AAPL, I think the bounce should be quite nice.
So where is the road maps for the S&P500/ES and NASDQ100/NQ now?
ES Daily Chart
So I have shown on a recent blog post why I think that we were just completing wave 2 of a 3-wave structure … that means we will bounce into the SLOT resistance zone for that 2nd wave, and then head down to bigger support thereby creating that 3rd and final leg of this bigger corrective move off of the all-time highs.
My timing window is for around the 1.382x time slot (Jan 25th) and I would expect the median line from the broadening pattern to provide resistance at around the 2564 level.
Wave 3 would then be expected around the 2245 level and for support to be found at around March 18th.
NQ Daily Chart
Same 3-wave structure expected for the NQ … resistance should come in around Jan 28th and register at about 6652. Wave 3 support would then be at around 5684 and come in at about March 20th.
OK … I just went through the 3 major indexes and made sure I had all of my charts in order – that includes extension targets and time extension targets. My read of the charts is that we are at levels that make believe that we are making support here in the markets. There is one question I have still about the ES/S&P 500 but with the other two main indexes more clear and obvious, I think I have to give some thought that the ES may also be at a major level of support.
I’m going to try and keep bias out and just analyze the charts and see how much evidence I have about being in possible support. I’ll start with the NASDQ 100 Index …
For the NQ, the first thing that jumps out at me is that we hit the minor-C (blue circle) wave time target which is 1.618x the time length of blue-A wave here today. The candle made today in that time slot was a large emotional one and it is a dark blue candle which my software does when trend strength has entered into the “extreme warning zone”.
How about price levels … We slightly exceeded for the bigger C-wave (red circle) the normal 1.272x target level that ABC patterns typically terminate at. That’s ok because it is an approximate target anyways, and when I look at the price extension target for the smaller c-wave (blue circle) we again finished right near the expected level as well.
The smaller c-wave (green) of the last move into support has formed 3 waves which I like to see as well.
Overall, I think with time and price hitting it so close here today, I am confident that the NASDQ has probably made a tradeable low today.
The above chart gives you a closer look at the last wave …
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #1
The Russell 2000 to me looks like it is just completing the 2nd of a 3-wave structure. I say that because we are closer to the 1.618x target that 3-wave structures hit with their 2nd wave than we are to the 1.272x target that you see with ABC’s.
Also, this latest move lower is an “extended” wave structure, and by that I mean that it exceeded the 1.618x target and extended down to the more emotional 2.272x target level. That emotion makes me think that we are just finishing wave 2 of 3. While not exactly at the bigger 1.618x target level, the timing window was only off slightly, having predicted a low made in the overnight session last night – it makes sense that all of the markets bottom relatively close together during the regular cash sessions.
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #2
So even though the NASDQ 100 looks to have completed an ABC, I still think it will fail in resistance and make the next leg lower in its corrective pattern … that move lower will coincide with the RUT’s move down into wave 3 support.
Ok, the S&P 500 Index is the one where I have less confidence that we bottomed in all the indexes today … let me explain.
If the ES completed an ABC corrective pattern to complete the first leg lower in this corrective pattern from October’s all time high, then price should have found support around the 1.272x extension target. Again, that is an approximation only so traders should not get hung up on an exact hit.
So I’m a little concerned that we overshot the 1.272x target, but if all of the other evidence tells me we completed into support then I am ok. The problem here is that it doesn’t all line up as well as it does for the NQ and the RUT.
Notice the time target … the 1.272x target is for Dec 23rd between 6pm and 10pm (that is the overnight session this coming Sunday). The RUT and the NQ hit their 1.618x time targets so well, I would have preferred that the ES did as well. The 1.618x time target window is not until Dec 27th during the 6pm-10pm window.
Also, the wave structure in this last leg down (blue circle) is hitting the 1.618x level which tells me that this leg is likely a 2nd wave of a 3-wave structure i.e., the move lower is not complete. Let’s look closer so I can better explain …
I have drawn a 3-wave completion down to the bigger 1.618x target which would make the ES a 3-wave structure like the RUT. The bounce from support would find resistance along with the other indexes and then fall lower to complete the 3rd wave.
So I think that it is very possible that the ES will need to complete its move into support early next week, which will be complicated by the Christmas holiday. Nonetheless, it fits better timing and price wise if I consider it a 3-wave structure that is yet to complete.
Bottom Line – The NQ and RUT are in support. The ES may be very close but not quite – I am hesitant to hold out on the ES because the other two are ready. If the RUT and NQ start to make moves out of support, I will assume that the ES/S&P 500 pattern “failed” to complete, which on its own is very bullish, and could lead to a big move higher very quickly.
I was reviewing my SPX/NDX/RUT road maps and printing out my charts when I realized that I had made a pretty simple mistake when talking about price structure.
Firstly, when an ABC correction completes it typically does so at around the 1.272x price extension level. When a move pushes beyond that 1.272x level down to the 1.618x level, then that suggests price structure is morphing into a 3-wave structure and the 1.618x support is only for the 2nd wave.
That is a big error that I was missing … I have had several health issues that I am dealing with etc, but that is no excuse for making that oversight.
I still want to see 3 waves to the current corrective leg down and therefore I think that the ES and the NDX could end their final push with just small minor new lows below yesterday’s level. The RUT looks like it will push down to the 1.618x level and therefore its bigger picture is a 3-wave move into more major support later next year sometime. The SPX/ES and the NDX could still be a bigger ABC if we do not push down to the 1.618x targets and find support around the 1.272x’s.
My timing windows are still valid I believe, but maybe the third minor waves of the current move lower will not amount to as much downside as I originally thought … it could and if that were to occur, then the SPX/NDX would also, in my eyes, be confirming a 3-wave structure for the bigger corrective move off of the all-time highs from earlier this fall.
To finish off my roadmap work, I’ll now look to small caps and the Russell 2000 Index. For a better, more detailed look at why my wave structure is pointing me this way, review my ES roadmap (click here).
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #1
So it looks to me that the RUT is making an ABC correction, and that yesterday we likely completed the 2nd minor wave of the final C-wave move. After a minor bounce, I would argue that we need to head down to the 1.618x extension target to complete the entire price structure.
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #2
A closer look at the C-wave shows me that we have likely only completed two of the three waves you typically see in a C-wave. Therefore, I think that the bounce out of yesterday’s low is likely to find resistance in around the 1422 level before flushing down into the C-wave low at around 1280.
Russell 2000 Index Futures Contract (RUT) – 240 Minute Chart #3
The C-wave timing window is similar to the one in the ES and the NQ … Wave C is often 1.0x the size of the A wave, and that would put the expected timing window at the January 2nd during the 6pm – 10pm candle.
I went through much of my more detailed thoughts about wave structure of the current correction in my earlier blog post about the S&P 500 (click here) so I won’t spend too much time stating why I think the NASDQ wave structure is the way I currently see it. I will skip directly to the charts …
Again, either my current read is right, or its not worth the time and effort to read/write it …. therefore, I won’t take this analysis any further than to look at my target for the current leg to complete into support in terms of time and price targets.
The same wave thoughts work here for the NQ as it did in my earlier ES analysis … I am looking for a minor bounce out of today’s low and then a push down to the 1.618x price target.
Note that the timing window for the NQ is a little tighter than the one I have for the ES … it appears that the NQ is likely to find it final support level before the end of the calendar year, but at a level that is about 8% lower than today’s close.