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Has The NASDAQ Bull Taken Over?

11/21/08 09:28:12 AM
by Koos van der Merwe

Last week, I wrote that I believed the Dow Jones Industrial Average had bottomed, and that the bull has taken over from the bear. This week, I see no reason to change my tune.

Security:   OTC
Position:   N/A

In that article, "The Dow And A Key Reversal" of November 13, I concluded by writing, "Whether this level is indeed the completion of the C-wave down will be confirmed over the next few days." The days that followed were positive, with the exception of Wednesday, November 18, when the three US automakers flew to Washington in private jets to testify in front of Congress with a tincup in each hand. However, I remain convinced that the bull is victorious, and Figure 1 shows why.

FIGURE 1: NASDAQ, WEEKLY. The light green is a 40-period simple moving average, and the dark green is an 80-period simple moving average.
Graphic provided by: AdvancedGET.
Figure 1 is a weekly chart of the NASDAQ, with my Elliott wave count and a relative strength index (RSI). There are two moving averages; the light green is a 40-period simple moving average, and the dark green is an 80-period simple moving average. I have chosen a weekly chart above a daily or monthly chart because it is an easier read.

In the chart I have shown how the NASDAQ dropped to a low in October 2002, completing an A-wave, and then corrected upward in a very complicated B-wave, moving above both moving averages. The RSI has not yet given a buy signal, although it is at oversold levels. This suggests that the NASDAQ may fall further, but not by much, as it attempts to find its bottom, hopefully at the low of October 2002.

Of course, in its B-wave rise, the NASDAQ never came close to its high of March 3, 2000, a high set by the dotcom bubble. This also meant that the C-wave collapse from October 2007 will not be as vicious as the Standard & Poor's 500 or the Dow Jones Industrial Average (DJIA), simply because there are no financial companies to collapse.

Whether my wave count is suggesting the end of the bear is at hand for the NASDAQ or the RSI gives a positive reliable buy signal in the near future, it certainly looks as though the NASDAQ is confirming a new bull market in the near future.

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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