Nasdaq 100 Correction Underway: Elliott Wave Suggests W-4 Followed by W-5 Rally

Nasdaq Composite Faces Potential Correction, But Rally Could Be Imminent: Expert Analysis

New York, NY – The nasdaq Composite is navigating a critical juncture, with recent price action suggesting a potential corrective phase, according to new analysis. The index, which peaked last Thursday at 23589, experienced a pullback to 22673 on Friday, breaching a key technical level.

Analysts are closely monitoring Elliott Wave (EW) theory, a technical analysis framework focused solely on price movements, to guide trading decisions. The breach of a previously established warning level of 22953 now indicates a 75% probability that a larger correction – labeled as Wave 4 – is underway.

This correction is expected to unfold in three waves (abc). Friday’s low is likely the initial wave (a), with a countertrend rally – ofen referred to as a “dead-cat bounce” – currently developing, possibly reaching 23025-380. This rally is anticipated to be a selling opportunity, leading to a final wave (c) targeting the 21650-22200 range. Importantly,this target zone aligns with the ideal target for the overall Wave 4 correction.

Technical Indicators Offer Conflicting Signals

While a correction appears likely, indicators suggest a potential rally could be on the horizon. The daily Relative Strength Index (RSI5) is entering a “buy zone,” signaling a possible oversold condition. Once the Wave 4 correction concludes, a subsequent Wave 5 rally could propel the index to 24560-25575.

Adding to the complexity, the Nasdaq McClellan Oscillator – a breadth indicator measuring advancing versus declining stocks – closed at -69 on Friday. Past data reveals that similar readings have preceded rallies in four out of seven instances as the beginning of 2024. In the remaining three cases, a brief bounce occurred before the rally ultimately began. This suggests a favorable probability of a renewed rally in the near term.Excluding a significant decline earlier this year, the odds of a rally increase further.

Navigating the Correction: bearish Warning Levels

As the index potentially enters a corrective phase, analysts have established new warning levels for bearish traders: 22972 (blue), 23176 (gray), 23345 (orange), and 23589 (red). These levels will serve as key points for monitoring potential resistance and adjusting trading strategies, mirroring the approach used during the previous bull run.

Understanding Elliott Wave theory & Market Breadth Indicators

Elliott Wave Theory: This technical analysis method posits that market prices move in specific patterns called “waves.” Understanding these patterns can help traders identify potential turning points and profit opportunities. It’s crucial to remember that EW is based solely on price action, filtering out external influences like news or sentiment.
McClellan Oscillator: This indicator provides insight into the overall health of the market by measuring the difference between the number of advancing and declining stocks. A negative reading suggests broad market weakness, while a positive reading indicates strength.

Disclaimer: This analysis is based on technical indicators and Elliott Wave theory.Market conditions are subject to change, and investors should conduct their own research and consult with a financial advisor before making any investment decisions.

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Understanding the Current Nasdaq 100 Landscape

As of today, August 5th, 2025, the Nasdaq 100 is experiencing a correction. This isn’t necessarily cause for panic, but a crucial period for investors to analyze the underlying technical structure. the Nasdaq Composite, and specifically the Nasdaq 100 index, which comprises the 100 largest non-financial companies listed on the Nasdaq, has shown strong growth in recent years. Though, corrections are a natural part of market cycles. currently, the focus is on whether this correction is a temporary pullback within a larger bull market, or the beginning of a more important downturn.

Elliott Wave Theory and the Nasdaq 100

Elliott Wave Theory,developed by Ralph Nelson Elliott,suggests that market prices move in specific patterns called waves. These patterns reflect the collective psychology of investors. applying this theory to the Nasdaq 100, we can identify potential wave structures and anticipate future price movements.

Currently, the prevailing view, based on wave analysis, is that the nasdaq 100 is completing a Wave 4 correction before embarking on a powerful Wave 5 rally.

Decoding Wave 4 Corrections

Wave 4 is frequently enough the most complex wave to identify,as it can take various forms. However, certain characteristics are common:

Time-Consuming: Wave 4 corrections typically take longer to unfold than other waves.

Complex Patterns: They often exhibit sideways or choppy price action.

Fibonacci Relationships: Wave 4 often retraces a significant portion of Wave 3,frequently adhering to fibonacci ratios (38.2%, 50%, or 61.8%).

the current Nasdaq 100 correction appears to be unfolding as a complex Wave 4, potentially a flat or triangle pattern. This suggests a more prolonged consolidation before the anticipated Wave 5 advance. Investors monitoring stock market corrections should pay close attention to these patterns.

Anticipating the Wave 5 Rally

Wave 5 is typically the final, impulsive wave in a five-wave sequence. It’s often characterized by:

Strong Momentum: A significant increase in price and volume.

new Highs: Breaking through previous resistance levels.

Extended Move: Wave 5 can extend considerably beyond the length of Wave 3.

If the Wave 4 correction is indeed nearing completion, a Wave 5 rally in the Nasdaq 100 could propel the index to new all-time highs. Key tech stocks within the index, such as Apple, Microsoft, Amazon, and Alphabet (Google), are expected to lead this potential rally.

Key Levels to Watch in the Nasdaq 100

Identifying critical support and resistance levels is crucial for navigating this correction and preparing for the potential Wave 5 rally.

Support Levels: The 14,500 – 15,000 range represents a key support zone. A decisive break below this level could signal a deeper correction.

Resistance Levels: The 16,000 – 16,500 range represents immediate resistance. Breaking above this level would confirm the end of the Wave 4 correction and the start of Wave 5.

Fibonacci Retracement Levels: Monitoring Fibonacci retracement levels from the previous Wave 3 high to the Wave 4 low can provide valuable insights into potential turning points.

Sector Rotation and the Nasdaq 100

Sector rotation plays a significant role in the performance of the Nasdaq 100. Currently, we’re seeing a shift away from growth stocks (typically dominating the Nasdaq) towards value stocks. this rotation is contributing to the current correction. However, a resurgence in growth sentiment, driven by positive earnings reports from major tech companies, could fuel the anticipated Wave 5 rally. Investors should monitor market sectors and adjust their portfolios accordingly.

Real-World Example: The 2022 Nasdaq 100 Correction

The Nasdaq 100 experienced a significant correction throughout 2022, driven by rising interest rates and inflation fears. While initially appearing as a bear market, the subsequent rally in late 2023 and early 2024 demonstrated the resilience of the tech sector and the potential for strong recoveries after corrections. This ancient example highlights the importance of understanding wave structures and avoiding panic selling during market downturns.The tech industry proved its ability to rebound.

Benefits of Understanding Elliott Wave Theory

Improved Timing: Identifying wave structures can definitely help investors time their entries and exits more effectively.

Reduced Emotional Trading: Understanding the underlying patterns can reduce impulsive decisions driven by fear or greed.

Enhanced Risk Management: recognizing potential turning points allows for better risk management strategies.

* Greater Market Insight: Provides a deeper understanding of market psychology and price dynamics.

Practical Tips for Navigating the Nasdaq 100 Correction

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