Blowing A Trumpet (Formation)

11/23/11 09:38:28 AM

by Koos van der Merwe

A trumpet formation is a sign of uncertainty. Is this what is happening to the indexes?

Security: NDX
Position: N/A

The NASDAQ is suggesting the formation of a trumpet. Trumpet pattern formations are a sign of uncertainty. The index is not quite sure whether its trend is up or down. With the present uncertainty in the world, I am not at all surprised. There's uncertainty in Europe, there's uncertainty in the US about the Presidential election in 2012, with Republicans attempting to tarnish President Obama's financial and health policies, and finally, there's uncertainty with world weather patterns causing havoc with major industrial nations. With all that going on, it has become a game of guessing, "What's next?"

My charts are both of the NASDAQ weekly index, with different Elliott wave counts.

FIGURE 1: NASDAQ, WEEKLY

Graphic provided by: AdvancedGET.

Figure 1 shows the trumpet pattern that has formed. The Elliott wave count shows that a wave V topped in May 2011, and the index then fell in an ABC pattern. The chart shows that wave C fell into the fourth wave of lesser degree, which is expected of a correction. However, as you can see on the chart, it just made it. With the count of the new bull market looking suspect, and the relative strength index (RSI) not falling to the buy zone, I am more inclined to look at the next chart as being the true wave count.

FIGURE 2: NASDAQ, WEEKLY

Graphic provided by: AdvancedGET.

The count in Figure 2 suggests further downside, with wave C possibly falling as low as 1701.48, the lower level of the fourth wave of lesser degree. Should this occur, it will happen in five waves, which will take us well into December, if not January 2012.

The NASDAQ is currently tracing a trumpet pattern, a pattern of uncertainty. Negativity in the index seems the most likely.

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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Blowing A Trumpet (Formation)

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