The NASDAQ 100 index closed at a new all-time high of 7826 last week, powered by strong Q1 earnings reports by Amazon and Microsoft, among others. The index is up by 650% from its 2009 low and by 884% since the bottom of the dot-com crash in October 2002.
Looking at than phenomenal growth, one can easily forget that the NASDAQ 100 can go down, too. No trend lasts forever and history shows that those who ignore this lesson suffer the greatest losses.
So instead of simply relying on the future to resemble the past, let’s take a look at the index through an Elliott Wave perspective. The weekly chart below reveals the structure of its entire uptrend since October 2002.
It looks like the bulls’ resiliency has its limitations. The great rally investors enjoyed during the last 17 years has formed a complete five-wave pattern called an impulse. It is labeled (1)-(2)-(3)-(4)-(5), where wave (3) is very extended and wave (5) is currently still in progress.
NASDAQ Bulls Have a Problem
The problem the bulls have with this pattern is that according to the theory, a three-wave correction in the opposite direction follows every impulse. In other words, we can expect a bearish reversal once wave (5) is over. The anticipated three-wave pullback has the potential to erase at least one-third of the post-2002 rally.
The RSI indicator also supports the negative outlook with a bearish divergence between waves (3) and (5). The exact ending point of wave (5) remains unknown, but in our opinion, the NASDAQ 100 has entered the high-risk-low-return area investors are better off avoiding. A decline to ~5500 seems to be around the corner.
Did you like this analysis? Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!