Nasdaq – Bears Are Pushing it Even Lower?

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Fundamental indicators::

• GDP – two consecutive negative quarters - technically a recession
  
• CPI - although CPI dropped to 8.5% last month, it is still early to say if this is a sign of reversal, or if it is to stay at high levels for longer period of time
  
• Manufacturing PMI - still above 50 with 52.8 but consistently dropping from its high back in March 2021
  
• Services PMI - sharp fall below 50 at 47.3 which says that service providers registered weaker expectations regarding the outlook for output
  
• New Orders - are contracting by 5.1% in August (Philadelphia Fed)
  
• Unemployment - although at the lowest level with 3.6%, jobless claims are rising 4 consecutive months
  
• Real disposable income - is not keeping up with high inflation and getting way below the growth trend we've had since 2008
  
• Consumer confidence - the lowest since 1980
  
• US Interest Rate - at 2.5% and planned to rise further, this will keep pressure on valuations of growth stocks and impact margins as debt servicing is increasing
  
• Nasdaq PE – although currently not at cosmic levels with 27 ratio (higher than S&P500&), there is still a lot of space to deflate valuations, as the lows experienced in 2008 reached 7x, and for many years since then staying below 20x
  
• Libor yield curve - inverted from March 2023 peaking at 3.78% and dropping since then, which is diverging with Fed dot plot - markets are voting that (1) there is no growth in the near future, i.e. recession and (2) the rates are going to be cut in 2023 to stimulate economy again
  
• Treasury yield curve – in August we have observed the deepest inversion between 2 and 10 years since 2000, usually a sign of an approaching recession
  
• Conclusion – there are a lot of negative factors in the US and in the global economy as a whole, indicating that there no signs of recovery yet, and although there are short term rallies in equities as markets are trying to predict Fed’s dovish pivot, it is still more likely correct even further until we have clues of economic recovery
  

Technical Analysis (Elliott Waves):

• Main scenario of this idea suggests that we are still observing development of the global growth cycle which is currently at the stage of forming corrective wave 4 (see higher timeframe graph)
  
• From the point Nasdaq peaked during Dot-Com bubble we can see a convergence in the corrective move lasting until May 2010 which is likely to be a Contracting Triangle
  
• Since then, index has enjoyed explosive growth with circa 830% in a clear impulsive move until November 2021 in a global wave 3
  
• Global wave 4 is now developing most likely in a series of zigzags which is usually nicely contained within Regression Trend Channel. The proposed scenarios suggests that WXYXZ formation is developing (based on marco sentiment for this scenario). And to complete it the last leg of this pattern is about to start with the target price level of $9730 – 25% shorting opportunity
  

This is of course one of many possible scenarios and a lot will depend on macro situation of US economy, namely we can expect big moves 26 August with Jackson Hole conference and PCE statistics, CPI 13 September, and the next Fed decision 20-21 September.

This is a higher timeframe to reflect the full history of Nasdaq and to provide full wave count:

What do you think about Nasdaq and its short-term prospects?
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