If one were to believe all the doom and gloom pundits – and there are too many of these days – the should be at 0 because of the same old news: inflation, war, the Fed, earnings guidance, recession, etc.

But lo and behold, the index is rallying. Why? Markets are forward-looking and all about “tell me something I do not know.” Thus, objective, fact-based analyses are the prudent and proven way to go when forecasting the financial markets. One method that often gets it right is the Elliott Wave Principle (EWP). For example, based on the EWP, I correctly forecasted all the critical lows and highs during the second half of 2021, weeks to months ahead. Similarly, the index reached the meaningful c=a relationship and bottomed right in the ideal 176.40-200.00%, (green) minor wave-5 target zone in late May. See Figure 1 below.

Figure 1. NDX daily candlestick chart with detailed EWP count and several technical indicators

Recent Rally Can Already Be Counted As Five Waves Up

The rally into last week’s high can be counted as five waves up, but there’s the possibility the sideways price action over the previous seven trading days is part of a more complex (grey, minute) wave-iv. See “grey iii?, iv?, v?” in figure 1 above. In the latter case, a daily close above NDX 12805 will signal wave-v is under way to ideally NDX 13100+/-100 to complete wave-1/a. From there (green, minor), wave-2/b should take hold and ideally target around NDX 12200+/-100 before wave-3/c takes hold. This option is exemplified by the grey/green path in Figure 1.

Alternatively, the index has already completed (green, minor wave-1/a) and is now in wave-2/b, targeting NDX 12100+/-100, ideally before wave-3/c takes hold. A daily close below NDX 12410 (the recent lows; red dotted line) will confirm wave-2/b is under way. The green path in Figure 1 exemplifies this option. The technical indicators on the daily charts are pointing up and are on a buy, so I prefer the first option. But sideways chop requires patience, and the market will tell us soon enough. Ultimately, it is simply a matter of “rally first, then drop, followed by at least one more rally,” or “drop now then rally.” The ideal upside target zone for wave-3/c is similar: NDX 14300+/-200.

The index will have to drop below NDX 12000 to tell me a much more complex outlook is at hand and that the “pesky” NDX 11000 level can be attained. It is not my preferred point of view, merely an alternate, but that does not mean one should dismiss it. Be prepared for it by having appropriate stops, for example.

Bottom Line: Based on the bullish technical indicators, the preferred path is a continued rally to ideally NDX 13100+/-100 to complete wave-1/a. I expect a ~5% pullback before the next leg higher, to ideally NDX 14300+/-200. Alternatively, the index will break directly below NDX 12410, bottom at around NDX 12100 and then rally to ~NDX 14300.