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ELLIOTT WAVE


QQQQ Breaks Key Support

09/24/08 09:09:53 AM
by Alan R. Northam

The QQQQ has now broken below key support drawn off the mid-March price low, confirming that crash wave (3) of 3 is now under way. The target price for the completion of the crash wave is calculated to be $28.03. However, once the crash wave is complete, this market will still make a lower low before a major bottom is in place.


Security:   QQQQ
Position:   N/A

I have written several articles on the QQQQ, and I encourage those reading this article to refer back to those for background information. My last article was entitled "QQQQ Crash Coming?" and describes the market as entering into the crash wave. In that article I said, "Expect QQQQ to sell off rapidly from here on out."


As of today, the crash wave has not been confirmed by the breaking of key support drawn off the March low. Figure 1 shows that from the market top late last year, the market has traded in the downward direction to complete wave 1 down in mid-March of this year. From that time, QQQQ moved higher into early June to complete corrective wave 2. Upon completion of wave 2, wave 3 down got under way and is now subdividing into five waves. Wave 3s are noted as the wave that traverses the greatest distance in the shortest amount of time. Wave 3 down then started to subdivide and completed subwave (1) in mid-July. The market then entered into another short-term correction to complete subwave (2) of wave 3 down. This then set up subwave (3) down. I call this the crash wave because wave 3s move the furthest in the shortest period of time and with the market now being in subwave (3) of wave 3 down, the downward momentum accelerates much more quickly. In mid-September, the QQQQ broke below key support off the mid-March low. The breaking of this line of support confirms that the crash wave is in progress and this market is headed for much lower ground.


FIGURE 1: QQQQ, DAILY. This chart shows the Elliott wave count and that this market is currently in wave (3) of 3. This chart also shows that QQQQ has broken below key support drawn off the mid-March price low.
Graphic provided by: StockCharts.com.
 
After having broken below key support, the QQQQ made another short-term bottom and has been moving upward over the last several days. Subwave (3) is now subdividing into yet five smaller subwaves, wave i down, ii a corrective wave, iii down, iv another corrective wave, and a final wave v down. Of these five smaller subwaves, wave i down is now complete and corrective subwave ii also looks complete. This now sets the market up for another third wave down, subwave iii that already looks to be under way. This sets up the market for subwave iii, of subwave (3) of wave 3 so the crash wave should now really start to accelerate to the downside in the very near future.


In Figure 2, I have shown the details of subwave ii and sub-wave iii. In this figure, take note that subwave iii down has subdivided into five smaller waves to the downside. When the waves unfold in five waves in the direction of the major trend, which in our case is down, it then confirms that the major trend has resumed. Note also that the market is now in a short-term corrective mode and looks to have completed corrective waves a and b of a flat correction. I have drawn in wave c, which is needed to complete this short-term correction before the crash wave can resume.


FIGURE 2: QQQQ, 10-MINUTE. This chart shows that this market has formed five waves in the downward direction, indicating that the downward trend is under way and that this market is not still in a corrective rally.
Graphic provided by: StockCharts.com.
 
In my previous articles on the QQQQ, I have shown how I have calculated the target price for the completion of the crash wave. This target price still stands and is calculated to be $28.03. However, the market normally likes round numbers, so I would expect to perhaps see the crash wave as ending somewhere around $30. Once the crash wave is complete, then this market will enter into a wave 4 correction followed by a final wave 5 down to new lows.

In conclusion, the breaking of the key support level off the mid-March price low has confirmed the crash wave. This also confirms that the major trend is still down and the market is not in the process of making a market bottom at this juncture. Once crash wave 3 is complete, the QQQQ will undergo a wave 4 market correction, followed by a final wave 5 down before we can even think of a major market bottom as being put in place. Figure 2 also shows the market is currently in a short-term market correction that should see the QQQQ rise to about $41.50 before the crash wave resumes.




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.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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Date: 09/24/08Rank: 5Comment: What a great guy to share all this hard work with us! I ll stand aside the market a littel longer thanks to this timely advice
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