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Nasdaq And The 53-day Cycle

07/02/04 08:41:23 AM
by Koos van der Merwe

In my article, "Nasdaq And Its Cycles" (posted December 16, 2002, Advantage), I showed that a simple 53-day cycle would predict the Nasdaq's cycle lows. I concluded that you should not use this technique to forecast too far in the future, as nothing is cast in stone. Let's see how it has performed and what to expect for the future.

Security:   OTC
Position:   Accumulate

Below is a daily chart of the Nasdaq Index, highlighting the cycle lows from April 4, 2001 to June 1, 2004.

The Nasdaq Index.
Graphic provided by: AdvancedGET.
I have numbered a possible Elliott Wave count and have made the following observations about the chart.

1. The 53-day cycle has been remarkably accurate in calling a low for the index, with the exception of the last one, June 1st 2004, when it was 11 days late. The cycle is now calling for a low on August 13th. Whether a low will form 11 days early is quite possible, however I stick to my guns, and August 13th it is.

2. The Wave count suggests the Index could be rising in a wave 5 of an impulse wave. This looks very true, as the first rule of Elliott states that the wave must look correct, and it does. The target would then be 2333.30, suggested by the MOB line as shown. The MOB (Make or Break) study is part of the Advance GET program and an excellent tool to help find the target price area for the end of an Elliott Wave 5, or for any pattern that has an impulse-correction-impulse pattern.

3. The price appears to be hugging the support trendline upwards as it traces the 5th wave, this in spite of weakness suggested by the stochastic oscillator.

4. There is a resistance level at 2084. How strong this level performs will help forecast the strength or weakness of the index.

5. Note that the high of May 23, 2001 is almost the target of the MOB line. This enforces the MOB suggestion of 2333.30 as a possible wave 5 top.

6. Finally, I have shown a cycle low for October 28th. This cycle, because of October's history, seems a far better bet than the low suggested on August 13th, which means that the cycle low of August 13th could be a minor low in an upward moving index.

To conclude, the Nasdaq Index is suggesting a wave 5 is in progress that will top sometime before August 13th, the next expected cycle low. Should this not happen, then look to a high before October 28th. If the wave count shown proves to be correct, then the index could rise above the 2153 resistance level of January 20, 2004 to 2333.30.

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.

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