The NASDAQ Composite has seen some wild action over the last couple of months. From a precipitous fall ending on Christmas eve to a rally that just won’t quit.

Back in October 2018 I started sounding the warning horns that a long-term correction was probable. Almost all stocks I cover at Trendy Stock Charts are off their all-time highs, some more than others. But the gloom and doom that was shaping up in October through December has seen a rally that has lasted more than 10 weeks in a row now. That is, until last week.

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Daily NASDAQ Chart

This first chart for the NASDAQ Composite (Comp) is a 1 year daily candlestick chart. I start off looking at a shorter-term perspective to see if there is any more momentum behind the rally. I use 2 different Fibonacci Extension Tools to calculate a potential topping area.

It appears another 5-7% could be in order before stiffer resistance is seen. It does not appear at this time that the NASDAQ will make another all-time high before the rally fades. However, another all-time high is not out of the question. The possibility for another all-time high would be determined during the correction from the current rally.

Now take a look at the MACD Histogram. It saw its first bout of selling momentum at the end of the rally during last week’s correction. The first sign of selling momentum during a motive wave tends to identify Wave 4 of the wave. So while the NASDAQ may have another few percentage points to run, the rally may be close to over. The weekly candlestick chart for the NASDAQ helps build my case. Let’s take a look at it now.

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Weekly NASDAQ Chart

This next chart is a 5 year weekly candlestick chart for the NASDAQ Composite. A weekly candlestick chart helps to identify trends a little easier than a daily candlestick chart. On this weekly chart I point out a Bearish Engulfing candlestick pattern that developed[s2If !current_user_can(access_s2member_level1)]…….

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I look at an upside price target range where I believe the current rally will end. I base my belief by using several different Fibonacci tools and Elliott wave analysis.

If you are not a Trendy Stock Charts member, consider joining today! There are several different subscription plans available.[/s2If][s2If current_user_can(access_s2member_level1)] last week. A Bearish Engulfing candlestick pattern typically signifies that the uptrend is either over or close to over.

The main supporting trendline for this rally is identified above. It is labeled the March 2009 trendline. The uptrend has moved quite a bit above its main supporting trendline. Could the current bear market provide the backdrop for a pullback to the trendline? It is still possible from a technical perspective.

I placed a red Fibonacci Extension Tool on the NASDAQ’s chart to measure downside risk assuming the uptrend is almost over. I used an estimated 7,750 ending point for anchor point #3 of the Fibonacci Extension Tool. The 7,750 price target falls at the lower end of the price range I estimated above. The 100% Target Line from the red Fibonacci Extension Tool above falls right on the March 2009 trendline.

The market, and Elliott waves in particular, like symmetry. A reversal that begins soon for the index could provide for a very symmetrical Zig-Zag wave pattern that ends on the March 2009 trendline. If that is the case, last week’s Bearish Engulfing candlestick pattern could have a very significant meaning.

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Earnings Matter

This next quarter of earnings seems to be pivotal from an Elliott wave perspective. If companies can stay away from slower growth talks and deliver on earnings, then another all-time high is possible for the index.

If more companies elude to slower growth, concerns that started during the last quarter, then the probability of a pullback to the March 2009 trendline increases significantly.

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Summary

Back in October, the word recession and slower growth were not even being mentioned in the news networks. Now hardly a day goes by without it being mentioned and over-analyzed.

Regardless of what the news pundits say right now, the Bearish Engulfing candlestick pattern on the weekly chart flashes “caution”. It wouldn’t hurt to have cash available and see where this correction takes the index.

If a new all-time high is on the index’s mind, then support should be found at the 7,00 price level. Any pullback that goes below the 7,000 level on heavy selling volume is probably a warning that a move to the March 2009 trendline is in progress.

While most earnings quarters are important, this one appears to be really important for the index as a whole.

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