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by Alan R. Northam
The NASDAQ completed its bull market runup in 2000 and is in a market correction that could last until 2010. It could fall to as low as 617.
Position: N/A
Alan R. Northam
Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.
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ELLIOTT WAVE
Second Market Crash Is Straight Ahead
08/18/08 12:15:53 PMby Alan R. Northam
The NASDAQ completed its bull market runup in 2000 and is in a market correction that could last until 2010. It could fall to as low as 617.
Position: N/A
| Figure 1 is that of the NASDAQ monthly bar chart over the last 12 years. This chart shows that the NASDAQ bull market peaked in 2000. According to R.N. Elliott, after the completion of a bull market trend, the market will correct in three waves, labeled waves (A), (B), and (C). Wave (A) is a downward trending wave and is made up of five smaller waves. Wave (B) is a corrective wave that corrects the losses incurred during wave (A) and is made up of three smaller waves. And wave (C) is a downward trending wave also made up of five smaller waves. As can be seen in Figure 1, wave (A) down unfolded in five waves from its peak in 2000 to its low in 2002 as the market crashed and lost about 78% of its value. Wave (B) unfolded in three smaller subwaves labeled A, B, and C from the market low in 2002 to the high in 2007. Subwave A unfolded from late 2002 to the end of 2003. Subwave B unfolded during the first half of 2004, and subwave C took from mid-2004 until late 2007 to unfold. Figure 1 also shows that wave (C) down has not yet unfolded. |
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| FIGURE 1: $COMPQ, MONTHLY. This chart shows Elliott wave count. This figure also shows an ending diagonal pattern indicating that the upward move from the 2002 low is over and the downward trend is about to resume. |
| Graphic provided by: StockCharts.com. |
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| Figure 1 also shows that an ending diagonal pattern has developed during subwave C of wave (B). Ending diagonals normally show up in two places on the chart. The first place they typically show up is in wave 5 and the second is wave C. As you can see from the chart, this ending diagonal has shown up in wave C. This does two things for the market technician or the Elliottician. First, as an ending pattern, it tells the technician that wave (B) is over, and second, it builds confidence that the wave labeling is correct. |
| With wave (B) now complete, wave (C) down has begun and is in its very early stage of development. To confirm that wave (C) down has begun, I have added a support line drawn off the low of subwave B. Confirmation of wave (C) will come when the NASDAQ decisively closes below this support level. What we want to do now is determine the target price for the complete move down of wave (C). Typically, the ratio of the high price to the low price of wave (A) and the ratio of the high price to the low price of wave (C) are equal, but the ratio of wave (C) can sometimes be 0.618 times that of wave (A). Since this calculation involves two different target prices, this then gives us a range of prices as a target. To determine this target price range, we first take a ratio of the high and low price of wave (A) and divide it into the high price of wave (B). The ratio of wave (A) is 5132.52 divided by 1105.96, which gives us a ratio of 4.64:1. Next, we divide 4.64 into 2862.51 and we arrive at an expected target price for the complete move of wave (C) to be 617. Second, we take the ratio of 4.61:1 and multiply it by 0.618 to arrive at 2.87. Then we divide this new ratio into the high price of wave (B) or 2862.51 to arrive at our second price target of 997. The result is a target price range of from 997 to as low as 617 for the complete move down of wave (C). This represents a minimum expected drop in price from today's price level of 60%. |
| To determine the time frame as to when the wave C down will be completed, all we need do is look back at wave (A). Typically, wave C unfolds in the same amount of time as wave (A). From wave (A), we should expect wave C to take approximately two and a half years to complete. This then suggests that the NASDAQ should continue to fall over approximately the next 18 to 20 months with an average annual rate of descent of 20% per year. This further suggests that the NASDAQ could fall to around 2100 by the end of 2008 or 14% lower from today's price level. |
| In conclusion, the NASDAQ market peaked in early 2000 and is in the process of correcting for the complete bull market runup in price. This market correction has currently completed waves (A) and (B) of a three-wave market correction. This leaves wave (C) down yet to be completed. Wave (C) down started in late 2007 and is expected to last for two and a half years or 30 months. Wave (C) has now been in progress for nine months, leaving approximately 21 months to go. This then suggests that the market correction for the NASDAQ will not be over until approximately the end of the first quarter of 2010. Further, the NASDAQ is expected to fall 60% over this time frame with a price target range of from 997 to 617. If this analysis is correct, then the second market crash is straight ahead. To confirm that wave (C) down has begun and that price can potentially fall into this target price range, the NASDAQ must close below the support line drawn off the low of subwave B. However, should the NASDAQ turn back up and move above the late 2007 high, then the complete move up from the low of 2002 is still unfolding and the second market crash has either been avoided or just postponed. |
Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.
| Garland, Tx | |
| Website: | www.tradersclassroom.com |
| E-mail address: | inquiry@tradersclassroom.com |
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