NASDAQ Composite 11/13/2016 – The Trump Rally
"The chance for a Trump win is less than 30%..."
"Expect a 5% - 15% correction if Trump wins..."
Well, as Trendy Stock Charts member SD pointed out in the Idea Chamber, the media got it wrong again and again this political voting season.
Whether you voted for Trump or not, we all need to unite and move forward. Wishing bad omens or ill will on him at this point is like hoping the pilot fails on the airplane you are flying. Trump is currently flying the plane of the United States of America and we all need to wish the pilot well in his maneuvers over the next 4 years. Don't worry though, this article is not going to discuss any politics or the election.
What I do want to do with this article is look at my approximate 4,950 downside target for the NASDAQ. It is especially important to review this since it fell a little short of that target during the last pullback. The Ending Diagonal wave pattern I anticipated was developing for the NASDAQ needed to hit the 4,950 area to validate the pattern. It did not, at least not yet. If the NASDAQ Composite continues rebounding, I will now look at some of the other possibilities that could be going on with the index.
NASDAQ Composite - Ending Diagonal Wave Pattern
So where is the Trump Rally heading? Before we analyze & calculate upside price targets for the rally, I want to re-visit this previous NASDAQ update.
In the update, I talk about the possible Ending Diagonal wave pattern that appeared to be forming on the chart. The Ending Diagonal wave pattern required the NASDAQ to print a 4,969.31, which it did not yet print before it started rebounding Wednesday morning.
The Ending Diagonal wave pattern is still a possibility that has not yet been eliminated, but the current price action indicates that the chances of this wave pattern developing are diminishing.
Trump Rally - Upside Price Targets
In the NASDAQ article linked above, I mention that the current bull market is probably nearing its end after a 7.5 year run. But is it? If the NASDAQ Composite fails to print a 4,969.31, that could be very bullish for the future. And it also means that the index may not yet be at the beginning of a consolidation period as I thought. But that is only if the NASDAQ holds above the 4,969.31 level in the next 2-3 weeks.
Let's look at the 2 different bullish scenarios I've identified as possibilities.
Bullish Scenario #1
I've written previously that the NASDAQ Composite's correction that ended in February 2016 appeared to be a Zig-Zag wave pattern. However, after an extended run like we've had over 7.5 years, bullish investors usually do not go away without kicking and screaming. This creates some volatility as investors take on new bearish positions. One of the corrective wave patterns that typically develops before an uptrend's final push is a Triangle wave pattern.
This back and forth volatility between bullish and bearish investors typically develops a Triangle wave pattern of some sort. Total volume is typically low or lower during the development of a Triangle wave pattern. There are 4 different types of Triangle wave patterns but based on the chart activity I have eliminated 2 of the possibilities. The remaining 2 are an Expanding Triangle wave pattern and a Running Triangle wave pattern.
Now let's look at a 10 year monthly chart for the NASDAQ Composite where I've illustrated these 2 potential Triangle wave patterns.
Obviously, the Running Triangle wave pattern would be preferable over the Expanding Triangle wave pattern. The pullbacks for Waves C & E in an Expanding Triangle wave pattern go deeper than the same pullbacks of a Running Triangle.
What to watch for - If one of these Triangle wave patterns is indeed developing, the NASDAQ Composite should not make a new all-time high during this current rebound. Price action could get close to a new high, but it should not make one. If the NASDAQ Composite does make a new high during this current rebound, then Bullish Scenario #2 comes into play.
Bullish Scenario #2
While perusing articles at the library yesterday, I came across an article from Investors Business Daily that gave me confidence in another extremely bullish possibility I saw developing. Check out this picture of some older chart activity that I snapped from the IBD article.
Pictured above is chart activity from 1968 - 1987 for the S&P 500 (the yellow activity). Overlaid on top of the yellow chart activity is the S&P 500's price action since the year 2000 (the red line). Click on the image if you want to read the article from IBD.
Could the market be setting up for a huge breakout? History tells us it is possible. That reminds me of an article I wrote over a year ago called something like "The NASDAQ Composite's 20 Year Cup Pattern". I wish all my older articles would have transferred over without error messages.
As mentioned above, further development of both Triangle wave patterns requires that the NASDAQ does not make a new high during the election rebound. But if the market does make a new high, that would seem to indicate a very, very bullish period coming up....
What to watch for - If the NASDAQ Composite continues its current uptrend and goes on to form a Bullish Impulse wave pattern rather than a Triangle wave pattern, the index should be able to reach the 5,800 area before its next significant correction. Reaching the 5,800 area before its next significant correction would be an indication that a breakout from the 20 year Cup pattern is a distinct possibility. A new all-time high would also eliminate the possibility of an Ending Diagonal wave pattern.
NASDAQ Composite - Summary
So how long is the Trump Rally going to last? Well, we need to keep a careful eye on the 4,969.31 level as mentioned above, as well monitoring to see if the index makes a new all-time high in coming weeks. There are still a couple of options open for the index but the next few weeks of activity should provide some additional clues....
Since these options can take several weeks to months to develop, continuing to monitor shorter-term activity appears to be the best course of action. I continue to stay long and bullish with all my personal holdings but will continue monitoring shorter-term trends to try and provide additional details as they surface. It just may not be the "doom and gloom" that the media (and stock market) want us to believe in. Let me know if you have any questions.