In May, we cautioned readers to be prepared for a downward turn in equity indices - a forecast that was in part supported by the development of wedge-like formations. However, U.S. indices have since broken upward out of those formations. We still believe upside potential is limited and a sizeable correction is due this season. Yet, we cannot count the top as being in. The Nasdaq 100 Index currently presents the clearest Elliott wave structure and it suggests that a small decline may be due in mid-June to be followed by an attempt to make yet another new high in late June or early July.
As shown on the monthly chart below, price has reached the target area we have been watching since early March. Not far above that area, the 3,862 price level provides additional resistance as the Fibonacci 76.4% retrace of the index's all-time high. When the rally finally ends, NDX should at the minimum see a correction of wave (v), and it may see a larger correction of the entire move up from 2009.
The weekly chart shows how May's strong upward price move fits well with the idea of an upward wave 'iii' -- a wave that would be expected to show strength. If price finds resistance near the mid-line of the channel on the weekly chart (approximately 3,817 this week), then a relatively small wave 'iv' could take it back down to test the lower channel boundary before another bounce. A more detailed count on the daily time frame supports this scenario, and it can be found at our website.