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Nasdaq Composite & NYSE Bullish % Index

The NYSE Bullish % Index still has a bearish reading of 64.98 (under 70 is considered bearish), but that reading is almost 2 points higher than the previous time I reported on it last week when I believe it was just over 63.

The Nasdaq Composite in this next 1 year chart looks like it could be time to take a rest - the decreasing buying volume is creating a bearish divergence. A bearish divergence is created when the share price (or index's value in this case) is rising and the buying volume is decreasing. This bearish divergence typically means that a short-term top is either approaching or already here.

I sketched out a possible Motive Wave Pattern with the blue trendlines that I see on the Nasdaq's above chart (Waves 1-5). As I noted above, there is decreasing buying volume that has created a bearish price volume divergence over the last 2 weeks. Prior to that, there was some heavy selling going on, which is typical in a Wave 4. These are 2 characteristics that fit a Motive Wave's Wave 4 and Wave 5 personality to the tee.

So if a Motive Wave has indeed completed, then some sort of corrective pattern is next. That is why I highlighted the previous downtrend on the Nasdaq's chart. There is one rule of Elliott Wave's that I have not discussed much lately, and that is the rule of alternation. This typically means that if the previous correction was a sharp drop-off type of correction (like a Zig-Zag Wave Pattern), then the next correction will most likely be a flatter type of correction (like a Flat Wave Pattern). Flat Wave Patterns typically will not correct as deep as a Zig-Zag Wave Pattern does.

That indicates to me that the market will appear to be going sideways for the next couple of weeks. That is one of the reasons that I have been raising some cash lately and selling various stocks to lock in gains. I need to have some more cash available in case a pullback does materialize over the next couple of weeks. You gots to have cash for the crash........(in this case, I wouldn't necessarily call it a "crash", but it sounds cool and rhymes).

Now, it is possible that Wave 5 continues its uptrend in the near term. Maybe in this case Wave 5 emulates Wave 3 instead of Wave 1. There are times where there are 2 extended waves in an uptrend. That is why I am still approximately 75% long in my portfolio with 25% cash.

When this correction ends at some point and the Nasdaq starts its next uptrend, it is very important to me that the Nasdaq has a couple of buying days with above average volume. It gives me an uneasy feeling having the bearish divergence take place. I would like a more positive confirmation about the index's direction.