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.
The daily chart offers another view of the price rise of May and early June and it also is consistent with the idea of that move being wave ‘iii’. A standard 38.2% retrace would take price near the lower boundary of the Schiff channel before another rally takes price up in a (perhaps final) wave ‘v’.
Intraday traders and others working on relatively fast time frames may find it possible to trade both of the approaching waves ‘iv’ and ‘v’, although wave ‘iv’ may turn out to be choppy. Traders with a longer perspective may have to choose how to approach a downward trade based on their appetite for risk. The method of offering out near a defined resistance level is more risky, but it also lends itself to tight placement of stops above that level. More conservative traders will wait for confirmation of a developing downward trend which probably would consist of another breach of the lower boundary of the channel shown on the weekly chart below.
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