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Sunday, August 23, 2009

Watching the NASDAQ



The NASDAQ represents the leading edge of speculative $$$ just like the Chinese markets. There is a good chance this index tops out first and produces intra-market divergence if the SPX and DOW continue to make new highs after a NASDAQ high. Its just something to look for. Its also the only index of the three that actually hit the lower wedge line on this recent Minor B wave pullback.

So what is a solid target for the NASDAQ? Well incredibly a very solid Fibonacci confluence exists at 2106.5-2108.

2106.5 is where Intermediate red (Z) = .618 times the rise from the March low to intermediate (Y).

2108 is where blue Minor wave "C" = .618 times blue Minor "A" within the final (Z) zigzag.

Over 2100 would also mean the NASDAQ had retraced in price over a Fibonnaci 50% (would be about 52%) creating a very satisfying Primary wave [2].

And lastly, 2108 would be a 66.6% rally. That means the market would have rallied 66.6% from the 1265 price low. (Theres that 666 number again)

This spot also happens to correlate pretty well where the upper wedgeline would be hit by the NASDAQ again.

Since the qqqq's (which track the $NDX or NASDAQ100) drive a majority of the NASDAQ, looking at the weekly qqqq's chart shows that they have started to finally rally into their breakdown gap from 2008. They have a knack for closing gaps. However even if it closes that gap, you can see there is a ton of overhead resistance still sitting on the qqqq's. Basically anyone who bought the qqqq's over the last 2 years and held may be glad to see the qqqq's back at this price and may just determine that, hey, its time to get out.

The SPX chart poses one important question: Do I have the degree markings correct for this breakout move over 1018?

If I do, then that means P2 top is not too far off in both price and time. If however the market is only rallying on an initial Minute wave [i] of [v] of C of (Z), then the SPX may run higher and longer than I have suggested on my provided chart. It would also allow a retrace Minute wave [ii] that could retrace any amount between 978 and Friday's high.

Mondays are usually a continuation of Fridays so they say, so we have no reason just yet to see a bearish Minute [ii] retrace. One noteworthy item on the daily SPX chart (not shown - see my public list on Stockcharts.com) is the extreme negative divergence that exists on the RSI. This is the kind of divergence that marks major tops, not Minute [ii] pullbacks.

If of course the market continues to trudge upwards on Monday some of this divergence will be likely erased which I half expect. However it will be hard for the market to erase it all if and when the SPX peaks.

The other important question is what if this is just a finishing move of a long-winded Minor "A" wave? I don't favor this as being the case because it doesn't fit well either in the sub-wave count or technically. I rather think this is indeed the final C wave to P2 peak playing out. A shallow B wave retrace may just indicate that C wave will be a rather quick, stunted affair. Bullishness on the $BPSPX is at a new extreme (81.20). The CPC (see Friday update) has really reached a new low level. A final push will make the trade so one-sided, that the markets will have nowhere else to go but down.

Going back to the NASDAQ, I'm also looking for a potential "exhaustion" gap up to occur for the qqqq's to break through their 2008 breakdown gap. That would occur likely Monday if it was to play out that way. Maybe that even creates a weekly island top for the qqqq's.

Those are some of my thoughts at the moment. Its things I am keeping an eye on and we'll just have to see how the market plays its hand during this final low-volume week of the summer.

Every index has made a new high. So by Elliott Wave guidelines, P2 could be very well over at any time.
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