The NASDAQ 100 is undergoing analysis based on the Elliott Wave Principle. Previously, the index was expected to advance in the 3rd of a 3rd wave for a final 5th wave if prices stayed above warning levels. However, the index peaked at 25873 on January 13 and dropped to 24954, contradicting the previous 3rd-wave scenario.
The Unexpected Movements
The unexpected movements suggest the index may be forming a larger ending diagonal pattern, characterised by a 3-3-3-3-3 structure. The November-January rally comprised three waves, with W-1 being 0.618 times the previous larger wave, a typical ratio. Despite the setback, remaining above the key lows of 24647 and 23854 keeps the potential for the 3rd of a 3rd wave alive.
For confirmation, the index needs to surpass the January 13 high, potentially targeting around 26900. An ending diagonal’s 3rd wave usually achieves the 123.6-138.2% extension of the 1st wave, pointing to a target range of 27090-27380. Warning levels are set at 25602, 25400, 25086, 24647, and 23854. These will be adjusted if the index rises further.
Looking back at early 2025, we saw the NASDAQ 100 take an unexpected detour after its peak on January 13 of that year. This price action complicated the immediate outlook but correctly morphed into the larger ending diagonal pattern we began to anticipate. That pattern ultimately played out, pushing the index toward the 27,300 level by the second quarter of 2025 before a significant correction took hold.
The Current Market Environment
Now, in late January 2026, the market environment is marked by hesitation after a choppy fourth quarter. The most recent Consumer Price Index report showed inflation remains sticky at 3.2%, while the resilient December jobs report has dampened expectations for near-term interest rate cuts. This uncertainty is visible in the CBOE Volatility Index (VIX), which has climbed to around 19.5, a clear sign of rising trader anxiety compared to this time last year.
For the coming weeks, this suggests a cautious approach is warranted. Derivative traders should consider strategies that protect against downside risk, such as buying puts on the QQQ or using bear put spreads to hedge against a potential re-test of the late 2025 lows. With mixed earnings from major tech firms so far this season, sector-specific weakness could easily drag the broader index down.
On the other hand, any positive surprises, like a softer inflation print or more dovish commentary from Federal Reserve officials, could trigger a sharp relief rally. Nimble traders can prepare for this by using short-dated call options to play for a quick bounce if the index shows signs of strength. A decisive break above the recent highs near 26,100 would be the first confirmation that bullish momentum is rebuilding.
