The NASDAQ 100 is being analyzed using the Elliott Wave Principle. Earlier, it was expected to move forward in the 3rd wave of a 3rd wave, leading to a final 5th wave, as long as prices stayed above certain warning levels. However, the index reached a high of 25873 on January 13 and then dropped to 24954, which contradicted the earlier prediction. ### The Unexpected Movements These unexpected changes suggest that the index might be forming a larger ending diagonal pattern, which has a 3-3-3-3-3 structure. The rally from November to January consisted of three waves, with the first wave (W-1) measuring 0.618 times the previous larger wave, a common ratio used in this analysis. Even with the drop, as long as the index remains above important lows of 24647 and 23854, the possibility of the 3rd wave of a 3rd wave is still alive. For confirmation, the index should exceed the January 13 high, possibly aiming for around 26900. The 3rd wave in an ending diagonal typically reaches around 123.6-138.2% of the first wave, indicating a target range of 27090-27380. Warning levels are established at 25602, 25400, 25086, 24647, and 23854, and these will be updated if the index rises further. Looking back to early 2025, we noticed an unexpected deviation in the NASDAQ 100 after it peaked on January 13. This price action complicated the immediate outlook but eventually led into the larger ending diagonal pattern we anticipated. That pattern unfolded, pushing the index toward the 27,300 level by the second quarter of 2025 before a notable correction occurred. ### The Current Market Environment As of late January 2026, the market is experiencing hesitation following a volatile fourth quarter. The latest Consumer Price Index report indicates that inflation remains steady at 3.2%. Meanwhile, a strong jobs report from December has reduced expectations for immediate interest rate cuts. This uncertainty is reflected in the CBOE Volatility Index (VIX), which has risen to around 19.5, indicating increased trader anxiety compared to last year. In the coming weeks, a cautious approach seems wise. Derivative traders might consider strategies that protect against downside risk, such as buying puts on the QQQ or using bear put spreads to prepare for a potential test of the late 2025 lows. With mixed earnings reports from major tech companies so far, weakness in specific sectors could drag the broader index down. However, any positive developments, such as a lower inflation rate or more favorable comments from Federal Reserve officials, could lead to a strong relief rally. Quick-thinking traders may want to use short-dated call options to capitalize on any bounce if the index shows signs of strength. A clear break above the recent highs near 26,100 would be the first sign that bullish momentum is returning. Create your live VT Markets account and start trading now.

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