NASDAQ Short-Term Support

10/20/08 09:26:53 AM

by Alan R. Northam

Recent commentary of market analysts has them looking at NASDAQ support as a possible market bottom. However, this is only a short-term area of support with much further to go on the downside.

Security: $COMPQ
Position: N/A

Figure 1 shows the monthly bar chart of the NASDAQ. This is the same chart I showed in my October 10th article entitled "Looking For The NASDAQ Bottom." This chart shows that the NASDAQ made a major bull market top in 2000 and has been undergoing an ABC zigzag market correction since. I encourage you to review this article for details on how I arrived at a bear market bottom for the NASDAQ at 618 in early 2010. I show Figure 1 here to give a sense of perspective as to where the market is in relation to its expected bear market bottom. The final bar on the chart is the monthly bar for October 2008, and although the month is only half over the monthly range, this bar is already showing that the market selloff is accelerating.

FIGURE 1: NASDAQ, MONTHLY. This chart shows the Elliott wave count and a price target of 618 in early 2010 as the completion of the bear market.

Graphic provided by: StockCharts.com.

Figure 2 is that daily price bar chart for the NASDAQ and shows more detail about where the market is in trek toward its final expected bear market low of 618. This chart shows the top of wave b in October of last year and shows the progress made in the final wave c down. To date, the NASDAQ has completed corrective wave 2 of wave (3) down and is currently in wave 3 of (3) down. Wave 3 down is unfolding in five subwaves, subwave i circle, ii circle, iii circle, iv circle, and wave v circle following the Elliott wave labeling convention. With the completion of wave iii circle, the NASDAQ has found some short-term support. There are those market analysts who are now looking at this bottom as a possible bottom to the complete selloff from last October. I heard this weekend one of the market analysts, on a local radio station, saying that this could very well be the bottom of the market. However, in my opinion the bear market still has much further to go (see my previous article). With wave iii circle complete, the market entered into corrective wave iv circle that could also be complete. A move below the low of wave iii circle will confirm that corrective wave iv circle is complete and that wave v circle is under way.

FIGURE 2: NASDAQ, DAILY. This chart shows the detail of the final wave C to date for the completion of the bear market. This chart shows that the NASDAQ has much further to go before the bear market of the NASDAQ is complete.

Graphic provided by: StockCharts.com.

Figure 2 also shows two target prices that have been met. The first target that has been met is wave 3 at 1705 and the second is wave iii circle at 1666.41. However, these two target prices are out of order. Wave iii circle should have been completed first and then wave 3, but the order shown are the results of my calculations. This then leads me to suspect that the market is going to move lower to a possible price target for wave 3 that is lower than that of wave iii circle. I have recalculated the price target for wave 3 to be 1467.42, the next lower price target, according to the Elliott wave theory. In addition, with wave iv circle complete, I also calculated the target price for wave v circle to be 1495. According to the Elliott wave theory, once wave v circle is complete, that will also complete wave 3. Looking at the calculated price target for wave v circle and the recalculated price target for wave 3, note how close these two price targets are. This is called a price cluster, and price clusters have a higher probability of occurring that single price calculations. Therefore, there is a high probability that wave v circle will be complete somewhere in the range of 1495 and 1467 that will also complete wave 3 down.

Looking at Figure 2 a little closer, note that the market has now completed wave iv circle, of wave 3, of wave (3). Once wave v circle is complete, then that will also complete wave 3. The market will then undergo a wave 4 correction, followed by wave 5 in the downward direction. Once wave 5 is complete, then wave (3) will be complete as well. Note that I have shown the price target for the completion of wave (3) to be 1409. This forecast was first made on August 8 in my article entitled "NASDAQ Double Bottom?" Further, note that the low of wave iii circle is not that far away from the wave (3) target. Therefore, the price target for wave (3) calculated in August still looks like a logical price target for the completion of wave (3).

In conclusion, the recent bottom by the NASDAQ is only a temporary bottom and not the bottom of the market. My analysis shows that the bottom of the bear market in the NASDAQ will not occur until the market has fallen to around 618 in early 2010.

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.