A Different But Feasible Elliott Count for the Nasdaq

07/11/03 02:19:08 PM

by Koos van der Merwe

As I have written before, Elliott wave analysis is far more obvious after an event than before an event. Forecasts using wave analysis to predict future movement in the market are always interspersed with the words "if this happens," then "possibly this could occur." Well, the count below, as unorthodox as it is, is another "could," but it does have merit.

Security: OTC
Position: Accumulate

The chart below is a daily chart of the Nasdaq from the high of March 9, 2000 to the low of October 7, 2002, considered by all to be the bottom of the market. From that point, if-- note the "if"-- my count is true, then the scenario that follows will be more of an ABC upward trend than the abcxabc pattern I have been predicting for the "B" wave upward, that I believe all the indexes are presently tracing. But then, the Nasdaq is an oddity, and did fall the furthest in the recent correction. This ABC pattern will take the Nasdaq to much higher levels than the abdxabc pattern expected for the Dow and the S&P 500 Indexes. (For an explanation on Elliot Wave and my previous wave count of the Nasdaq, see my article "The Nasdaq: Elliott Wave and Kontratieff," TradersAdvantage.com, Nov. 19, 2002.)

Looking at the chart, I have shown the count ending in a Wave C, on October 7th. From that point the Nasdaq has moved up in a Wave I and Wave II correction that ended on March 7, 2003. From here it appears to be tracing a wave 5 upward of a Wave III impulse movement with wave 5 (Wave III) of that move targeting the 1.618 projection at 1943. From this point there should be a correction in Wave IV that will be a simple one, because Wave II was reasonably complicated. This should take the Nasdaq back to the 1683-1607 level. From there we could see Wave V rising to 2022. This is determined by calculating the length of Wave 1 (1529.64 - 1113.82 = 415.82) Add 415.82 to the low of wave 4 (approximately 1607) and we have 2022.84 (1607 + 415.82 = 2022.84).

An alternate and very probable Elliott count of the Nasdaq.

Graphic provided by: AdvancedGET.

Now all of the above is guesswork, because Wave V need not necessarily be equal to Wave I. It can be larger, and hopefully rise to 2364.55, the 2.618 level of the Fibonacci projection shown on the chart.

The RSI indicator shown also looks interesting and points to a high yet to come. Arrows on the chart show how the Index reacted to RSI divergence, occuring when the chart made higher highs, while the indicator fell away. Should this repeat the divergent pattern, then the Nasdaq should keep going to higher levels as I have suggested above.

Wave 4 could well be a simple correction as I mentioned earlier, simply because of the American presidential election due in November 2004. The year leading up to the presidential election is almost always positive, especially if it is to win a second term in office. We will therefore see Wave V be a long and rewarding wave, with the euphoria of the "bubble" reappearing. Shrewd, cautious investors will slowly move out of the market, and take profits.

Finally, in an already busy chart, I have added the 53-day cycle which has proved itself admirably. I have randomly chosen October as the bottom of Wave IV, simply because October is usually a month of extremes, although history shows that September is by far the worst month in any year, with the exception of a presidential year.

Of course, a word of caution. Like any true Elliottician, I have an alternate count in my back pocket and will produce it very quickly should none of the above occur.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.