January Commentary

When we looked at the NASDAQ market in December, we expected a C wave peaking at 1210. It finally peaked at 1155, short by 55 points from the target. When looking at the graph, we see that the ABC correction pattern is possibly part of a wave 1 and if the price holds above 972, the lowest price since end of wave 1 (977) could be the end of wave 2. It would trigger the next wave 3 and would also confirm a bullish market trend. However, do not forget that the amplitude (medium) of the waves we are looking at is very small when compared to the previous trend (slow). Does that invalidate our scenario? Not necessarily but we need to verify a few more things to increase our confidence level. The lowest price in October was 795 while the highest in December was 1155, a 45% increase that would cover the largest amplitude we are looking at in October at the end of wave 5 (slow) in red. Second thing is the blue trend line that has been penetrated in October. This was a rather long term trend line and its violation is very significant. The RSI (magenta line at the bottom) and the RMI (thick red line at the bottom) are also exhibiting similar trend penetration on a shorter term basis.

 

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Looking at the top of the screen, the STORSI (green) and the Demand Index (red) are heading upwards in bullish territory. In fact the STORSI is already in oversold territory although it could stay like this for an extended period. For those who are very daring, the time is ripe to get into the market with the appropriate stops. If you prefer less risk, you should wait for the price to move 1) above 1105 for a confirmation of the end of wave 2(m) or 2) above 1155 for a definite wave 3(m).

Looking at a broader picture, the slow amplitude, we cannot say that the A wave is over, the price did not retrace enough (only 15% so far). Although there is no consensus on forecasting a wave A, many use the end of wave 3 of the previous trend. This would put the target at 1348 assuming the correction takes place. AlphOmega Highlighter algorithm puts it at 1376. Either way it is a big correction for a market where the uncertainty of a war is predominant. It will be interesting to follow the market dynamics in the next few weeks if only to ascertain the validity of our application of Elliott's theory.