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ELLIOTT WAVE


NASDAQ Bottom? Not Yet!

10/30/08 10:00:13 AM
by Alan R. Northam

The NASDAQ recently made a huge upward move of 9.53% and market analysts are saying that the bottom of the bear market may be at hand. However, the NASDAQ has further to go on the downside before the market bottom is found.


Security:   $COMPQ
Position:   N/A

Recently, I wrote an article entitled "NASDAQ Short-Term Support," published on October 10. In that article, I wrote that the NASDAQ had only reached a short-term area of support and that the bottom was not in yet. I also mentioned that I heard a local market analyst say on the radio that this could be the bottom of the selloff. My article points out that the bottom is not in yet but has a long way to go before the ultimate bottom is found. I encourage reading this article for the details of my analysis. On Tuesday, October 28, the NASDAQ made a huge upward move of +9.53% and again I heard a market analyst, this time on TV, say that he believed the market was butting in a bottom. I thought it prudent to write this update to my recent article to put this upward move into perspective.


Figure 1 shows that the NASDAQ made a short-term support on October 10 when it completed a wave iii circle to the downside. Since that time, the NASDAQ corrected to complete a wave iv circle. The NASDAQ is now in the process of completing a wave v circle down. A wave v circle is subdividing into five smaller waves: wave i, ii, iii, iv, and v, of which waves i, ii, and iii are complete. The NASDAQ is currently completing a corrective wave iv, which could have one more small move higher before it is complete. Once wave iv is complete, then wave v to the downside will begin. Once wave v is complete, then that will complete the wave v circle, after which the market will undergo another market correction (see my previous article for details and price targets).


FIGURE 1: NASDAQ, HOURLY. This figure shows the Elliott wave count of a wave v circle down. This figure also shows the trading channel the NASDAQ is trading within.
Graphic provided by: StockCharts.com.
 
The main purpose here is to point out the details of waves iii and iv. Note that wave iii down has subdivided into five waves, wave (1), (2), (3), (4) and (5). According to Elliott wave theory, a five-wave move defines the direction of the main trend, which is down. Elliott also states that the market will correct in three waves following a five-wave move in the direction of the main trend. Note that wave iv is developing as a three-wave move, waves a, b, and c. For a bottom to be in, this last upward move off the low of subwave (5) would have to develop as a five-wave upward move. However, what I see developing is a classical ABC zigzag countertrend correction. I have also added a parallel line trading channel to help put this recent upward thrust into perspective. Note that the NASDAQ has not broken out of this downward-sloping trading channel. In Elliott terms, this trading channel is called an ending diagonal, which ironically doesn't have to be a diagonal. It is called a diagonal because waves i and iv are overlapping. This overlap is not allowed except in an ending diagonal pattern. As the name suggests, this is the ending wave pattern, which is consistent with our analysis that the wave v circle will be complete once subwave v is complete.


In conclusion, the market bottom is not in. The NASDAQ is currently in the process of completing subwave iv of five subwaves that are making up a wave v circle to the downside. Once wave v circle is complete, then that will also complete wave 3 or wave (3). There remains many waves that need to unfold before the market bottom is in. From here on out, there will be many corrective waves, and with each one we will probably be hearing market analysts saying that this could be the bottom. But the bottom will not be here until all the waves to the downside have been completed. Again, read my previous article, as it has more detail on all these waves along with price targets. Happy trading!




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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