NASDAQ 100 is approaching the predicted buy zone. The time to act is near

Nasdaq 100 futures slipped after hours on Thursday morning following a sharp selloff in the regular trading session on Wall Street on Wednesday. Nasdaq 100 futures dropped over 1%, SP 500 futures fell about 0.75%, and futures tied to the DJIA were down 0.32%.

Facebook-parent Meta beat on top and bottom lines and was initially up after hours, but the Reality Labs division lost $3.7 billion. Guidance was also a bit weak, so the shares slid more than 3% AH. In contrast, one of our core holdings, Service Now, advanced more than 4 % AH.

The moves follow a brutal session, driven by a 9.5% decline in Google-parent Alphabet. The cloud unit had to confess that it could not effectively compete with Microsoft and Amazon regarding AI-related cloud business.

The S&P 500 ended the day below the 4,200 level. The Nasdaq Composite lost 2.4% and recorded its worst day since Feb. 21 (close to the spring 2023 bottom), while the DJIA shed only 0.3%.

The first estimate for third-quarter GDP and earnings from Amazon will provide further guidance today. Weekly jobless claims data will also be out.

The four charts below show the NASDAQ 100 price action at different time frames. From top left to top right and bottom left to bottom right - NASDAQ 2-year, NASDAQ 4-month, NASDAQ 1-month, and NASDAQ last 15 days.

The top left chart shows the two major support levels that need to hold for the bull count to remain valid. The top right chart shows the potential a-b-c-d-e count. If correct, Wave e may bottom at around 14250 - 14300 on the index. This coincides with the low on Jun. 7 (see top left chart). It would stop at the lower trend channel again. Wave e would have about the same length as Wave c. This could mark the end of the corrective phase.

There would have been a total retracement of roughly 1650 points. There is solid technical evidence that such a retracement might be the bottom of wave 4, mainly because of the following:

Wave Length Symmetry: If Wave e has the same length as Wave c, this would create a sense of symmetry, often seen in Elliott Wave patterns. This kind of symmetry can provide more confidence in the count.

Technical Confluence: The 14.250 - 14.300 level would represent a significant retracement, and if it aligns with the lower boundary of the trend channel, it could serve as a strong confluence zone, adding further weight to its significance as a potential endpoint for Wave e.

Fibonacci Retracement of 38,2 Percent: A move to the 14250 - 14300 level would result in the fourth wave retracing about 38 percent of the length of the prior third wave. It should coincide with the SP 500 holding above the critical 4150 - 4200 level.

Given these considerations, the 14.250 - 14.300 level is a plausible target for the end of Wave e, especially if other technical indicators and patterns align with this view. Remember, the end of Wave e would be followed by the commencement of Wave 5, which, if the count is correct, could push the index toward new all-time highs.

Support and Resistance Levels

I see the following support levels:

Support 1: 14.250

Support 2: 13.750

Support 3: 12.880 (this level must hold for the bull count to be valid)

We see the following primary resistance levels on the NASDAQ 100 (this should not be the primary focus right now :-) - due to modification:

Resistance 1: 15.330 (break above means break of the downward channel, probably confirming that we are in wave 5)

Resistance 2: 15.620

Resistance 3: 15.800

Resistance 4: 15.950

Preferred count

We stick with the a-b-c-d-e pattern within corrective Wave 4 as our preferred count. The market is a bitch. A pattern like this drives both camps - bulls and bears - crazy. It would fit the seasonal patterns and lead to quite a strong Wave 5 year-end rally. It may stretch 2000 - 3000 points (wavelength equality principal, in this case, with wave 1) and would finish around the ATHs of the NASDAQ 100.

It would also mean that the first half of 2024 would be bumpy - either going sideways or significantly down if the current move up is not the start of a new bull but simply a big bear market rally (I will deal with that possibility shortly).

The bond market

The bond market is moving towards a flat yield curve. The yield difference between the 2-year and 10-year notes has diminished to about 0.16bps, with the yield of 10-year notes closing the gap swiftly.

Trading action

We expect the downward trend to resume today and to hit our initial buying zone. So, it may be time to move from watching to acting again.

We will buy an initial position (some AI-related tech stocks we like) - probably in the final minutes before the close of the day - and see how the Amazon earnings turn out.

We will add to our position at support level 2 - but next week at the earliest. Support level 3 must hold for the bull count to remain valid.