QQQ (Nasdaq 100) could bounce before working significantly lower
Updated
The Nasdaq 100 
NDX could bounce before working its way significantly lower. The charts I've used track Invesco's ETF 
QQQ, which tracks the Nasdaq 100. The QQQ is my preferred trading vehicle, including options on this underlying security.
In this chart appears a working thesis as to the wave counts starting at the ATH of 408.71 on November 22, 2021, when the NDX / QQQ peaked.
Brief Summary: The NDX (represented by QQQ) is forming motive waves downward (both from the ATH of 408.71 on November 22, 2021, and from the swing high of 371.83 on March 29, 2022.) Motive waves imply that the larger-degree trend is continuing downward at present. Price should bounce in a sub-wave 2 (blue) in the coming days. The bounce could be weak if the corrective wave is sideways. Sub-waves 3 down, then 4 up, then 5 down would also form.
Price Targets Summarized: If the larger-degree wave structure is an ABC pattern (discussed below), the target would be 281. If the larger-degree wave structure is a 5-wave move, then the target could be much lower around 225, which sounds outrageous—but when markets fall, no one expects them to fall lower when they do, and when they rise, no one expects them to rise higher when they do.
Detailed Analysis and Comments
It appears that 5 waves down formed first ending at the February 24, 2022 low. Then, NDX carved out an A-B-C expanded flat corrective pattern, which could also be characterized as a W-X-Y perhaps. In any case, the price action from February 24 - March 29 high appears corrective, which means the upward move is working against the trend of one larger degree. This is a signal perhaps that once that corrective action is complete, the trend will resume in a downward direction.
Where does the decline in the Nasdaq 100 end? Two alternatives could be arguably unfolding:
In the main chart above, my 5-wave rendering starting at the March 29 high is hypothetical (given that price action has not yet occurred where the waves are drawn), but this is drawn in the same blue color as the initial 5-wave move down from the ATH at 408.71. The first sub-wave 1 of this 5-wave downward move is teal. Because 5 waves are formed as part of wave 1, the price action can be described as impulsive within this current move down, supporting my working theory that overall, the current downward move is "motive" (and impulsive), i.e., in the same direction of the larger-degree trend. (Motive waves unfold in 5-wave moves, and move the price in the direction of the trend of one larger degree, whereas corrective waves work against the trend, typically in ABC or other complex corrective patterns.)
NDX could bounce before working its way significantly lower. The charts I've used track Invesco's ETF QQQ, which tracks the Nasdaq 100. The QQQ is my preferred trading vehicle, including options on this underlying security.In this chart appears a working thesis as to the wave counts starting at the ATH of 408.71 on November 22, 2021, when the NDX / QQQ peaked.
Brief Summary: The NDX (represented by QQQ) is forming motive waves downward (both from the ATH of 408.71 on November 22, 2021, and from the swing high of 371.83 on March 29, 2022.) Motive waves imply that the larger-degree trend is continuing downward at present. Price should bounce in a sub-wave 2 (blue) in the coming days. The bounce could be weak if the corrective wave is sideways. Sub-waves 3 down, then 4 up, then 5 down would also form.
Price Targets Summarized: If the larger-degree wave structure is an ABC pattern (discussed below), the target would be 281. If the larger-degree wave structure is a 5-wave move, then the target could be much lower around 225, which sounds outrageous—but when markets fall, no one expects them to fall lower when they do, and when they rise, no one expects them to rise higher when they do.
Detailed Analysis and Comments
It appears that 5 waves down formed first ending at the February 24, 2022 low. Then, NDX carved out an A-B-C expanded flat corrective pattern, which could also be characterized as a W-X-Y perhaps. In any case, the price action from February 24 - March 29 high appears corrective, which means the upward move is working against the trend of one larger degree. This is a signal perhaps that once that corrective action is complete, the trend will resume in a downward direction.
Where does the decline in the Nasdaq 100 end? Two alternatives could be arguably unfolding:
- Alternative One: The entire decline starting at the all-time high of 408.71 is a 5-wave move down in terms of the next larger degree of trend. I have shown this possibility (below) with a larger-degree black line representing a 5-wave move down from the ATH. If this theory is the proper one, the target would be at least 1.618 of the larger-degree Wave 1, which results in a plausible target of 225.48.
- Alternative Two: The entire decline starting at the all-time high of 408.71 is a 3-wave ABC corrective pattern. This potential structure is shown in a black line (below) with larger-degree A, B and C waves in the chart below. Note: even if the larger-degree wave structure is a corrective ABC pattern, the sub-waves (in blue) within the A and C waves will be motive / impulsive because they are moving in the direction of the trend of one larger degree, a downward correction. Under this theory, the C wave will probably equal the A wave in terms of distance so that A and C are proportional, creating a target at the 1.00 extension at 281.38.
In the main chart above, my 5-wave rendering starting at the March 29 high is hypothetical (given that price action has not yet occurred where the waves are drawn), but this is drawn in the same blue color as the initial 5-wave move down from the ATH at 408.71. The first sub-wave 1 of this 5-wave downward move is teal. Because 5 waves are formed as part of wave 1, the price action can be described as impulsive within this current move down, supporting my working theory that overall, the current downward move is "motive" (and impulsive), i.e., in the same direction of the larger-degree trend. (Motive waves unfold in 5-wave moves, and move the price in the direction of the trend of one larger degree, whereas corrective waves work against the trend, typically in ABC or other complex corrective patterns.)
Note
Tuesday and Wednesday's bounce (short-covering / relief rally), and today's reversal, both happened with lightning speed. It seems that the market has been moving in fast forward. What used to take 2 trading weeks seems to unfold over 1 day, sometimes a couple hours.Given today's price action, my view is that the anticipated EW bounce (subwave 2 of wave 3 / subwave 2 of wave B in the alternative scenario) is complete. I realize it's sort of obvious by now. This should begin the 3rd wave down, which EW theory states tends to be stronger and more intense than other waves. If there is any retracement upwards of this current downward move, consider getting short at a good entry point.
Yesterday I opened put debit spreads on some key constituents of QQQ. And today, while the move has already gotten away, some lower risk put calendars and broken-wing butterflies can offer some good risk reward for the anticipated move down over the next few weeks.
Note
One of the targets discussed a few days ago was 281 on QQQ (Nasdaq 100 ETF). That was the projected wave A decline -- projected from the start of the 3/29 decline. That target was nearly reached on 5/12, and QQQ hit 285. I suspect 281 may be tested soon, though an oversold bounce could occur soon as well. I would not enter any bearish QQQ positions here - other than intraday trades using shorter intraday timeframes - given how extended NDX is to the downside. However, a retest of 285 low from 5/12 is likely. Maybe this is even undercut. But prepare for mean reversion soon.
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