Wall Street indices closed lower for the first time in six months, and “sell in May” takes shape in the world’s largest equity markets. In retrospect
Wall Street indices closed lower for the first time in six months, and “sell in May” takes shape in the world’s largest equity markets. In retrospect, the fact that they surged to new highs for five months consecutively ought to have alerted investors to the impending fall. The Nasdaq-100 index just reversed higher from the crucial support of 17815 index points, which has been pulling the market since the end of February. 
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The 20-day moving average and the 38.2% Fibonacci correction of the previous strong upward impulse from the middle of last month reinforced the support level at 17815. The active impulse waves III and III, are both a part of the higher order impulse wave (3) that began at the beginning of January and is being continued by the upward reversal from the support level 17815.
The NASDAQ 100 index dropped 5.8% more over the next seven trading days, confirming our prediction. However, it has since staged a 5% rebound, reaching a high of 17858 yesterday. So, has the correction ended, or was it “dead cat bounce”?
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Specifically, there have been three (green) waves to the rally since the bottom on April 19. Three-wave rallies, sometimes called “dead cat bounces,” are countertrend rallies.
The choppy nature of the “rebound” from the 17k area and the initial slide from the March high remained above 17k indicating that this is a retracement versus the move lower from 18,518. And that implies that there might be an impending cycle bottom.
Furthermore, the RSI (2) is quite near to being overbought, and lower volume and higher prices indicate a lack of bullish enthusiasm for the move. The inclination is therefore for this week to be the Nasdaq’s peak. With a stop above 18,250, bears may try to fade into a move in the 18,000–18,100 region. The starting point is approximately 17,500. Therefore, it remains below the colored warning thresholds depicted above, our desired EWP count is for a larger top, the red W-b/ii, to have formed yesterday.
It should now be ready for the index to start its red W-c/iii leg lower, hopefully to $15900+/-500, depending on how this second leg lower’s Fibonacci extension plays out.
The less likely scenario is that yesterday’s peak was merely the beginning of the fourth wave, and a lesser drop to roughly 16700+/-100 is in store. This is where the “countertrend rally and the next leg-lower” sequence can start.
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