I am still 100% long the NAZ, and bullish…here’s why:
After two weeks of watching the SPX do it’s bungee chord routine (establish a low, and then retest it three times), the NAZ has been gradually moving higher in an apparent impulse wave. We recognized the 10/13 low at 2026, turned bullish, watched the NAZ rally nicely, exceeding our 2115 impulse wave targeting level, and reaching an intraday high on wednesday at 2121. However, the 1st and 4th waves up seemed to overlap, thus I was looking for the rally to continue. Instead the market sold off sharply on thursday. Upon further investigation of thursday’s activity this is what I discovered.
The SOX index (semiconductor’s) starting breaking down on thursday, dragging down the tech filled NAZ, (in the fall, tech stocks seasonally rally), which pulled the general market with it. We mentioned this in yesterdays post. Overnight, the futures stabilized and the indices opened this morning to the upside. Then, in what appears to be a final washout, the SOX index gapped down on the opening and sold off, and the same scenario as thursday started again. Only this time, the general market SPX/DOW, took leadership and started heading higher in spite of it. In fact, by the end of the day, the SPX/DOW had recaptured all of yesterday’s losses and kept moving higher still. I have posted two charts on the SOX index: a daily chart displaying thursday and fridays washout activity; and a three year chart displaying how the SOX hit it’s bull market uptrend line today and bounced off it. The key level to watch here is the EW pivot 418, it should provide support. After hitting a low of 413 this morning, the SOX index closed at 423. When the downside gap is closed, the NAZ should take market leadership again.
As mentioned earlier, the NAZ did complete an apparent impulse wave from the lows at 2026 into wednesday’s highs at 2121. The overlap occurred because of a fourth wave triangle: see NAZ hourly chart. I didn’t take note of it at first, because this is a rare occurance in a kickoff impulse wave. However, since the SPX has made three retests of it’s lows since the NAZ impulse wave began, it is quite acceptable. Thus, the selloff on thursday was just a correction of the first impulse wave, bottoming right near the low of the triangle (previous 4th wave): see NAZ 30 day chart. The EW pivots to watch are support 2040, 2053 and resistance 2098, 2112, and 2165.
The SPX has been the unstabilizing market factor for the past few weeks. Everytime the market looked poised to rally, this index would turn over and take the whole market with it: see SPX 3month chart. It actually made its print low on 10/13 at 1169, as did the DOW at 10,098. But instead of rallying strongly, it has been building a base, by retesting that level with gradually higher lows three times. This appears similar to the base building process in April, 2005. If we take today’s low of 1179, and we see a print high of 1216 by no later than wednesday I’d be satisifed that the bottom is in, finally. The EW count looks pretty good here as well. Lots of symmetry between wave C and wave A of this correction. The EW pivots to watch are support 1174, 1184, 1191 and resistance 1200, 1212, 1221, and 1234.
In summary: I’m still builish and 100% invested. The NAZ appears to have completed an impulse wave up from the 2026 lows, and corrected. The SPX/DOW may have finally ended their multi-week base building process. We’ll know next week. I’m heading to the Breeders Cup tomorrow. Good trading!