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Thursday, July 30, 2009

The QQQQ's and The Great Asset Mania

The qqqq's are where America's retail (and institutional) investors pour forth all their "asset mania" bullishness. And why not? These are the companies that have the cool toys that the investors themselves play with. These are the companies that have piles of cash. These are the companies that are in no danger of bankruptcy.

The Great Asset Mania, as Robert Prechter (founder of EWI and co-wrote the definitive bible - Elliott Wave Principle) likes to describe, greatly manifested itself in the tech stocks of the qqqq's in 2000. Unheard of sums of money were being paid for stocks of companies that never earned it nor deserved it. If anyone has doubts about the basic tenets of EW's (social mood is what drives the market. Not news. Not fundamentals!) look no further than the proof of the great 2000 peak in the NASDAQ of which the qqqq's was the driving sector.

But of course the asset mania popped a bit and the qqqq's fell hard. The hard fall down to the 2002 low shook out all the crap in the NDX and all the frauds and other non-performers. A great cycle b wave rally ensued for many years and the big tech survivors grew lean, strong and innovative and earned piles of cash (I speak with broad strokes here of course). And investors rewarded those companies such as Apple and Google by bidding up their stocks to much higher P/E levels than other indexes or sectors.

In actuality, the great asset mania diverted itself to real estate and another great bubble was blown. And the qqqq's, in their 5 year run from 2002-2007 only managed to regain a percentage of their lofty highs of 2000. Yet still, stocks such as Apple peaked at $200+, Google at $750+.

What do stocks like Apple bring you? Not much except one thing: you hope to sell it to the next sucker for a higher amount. The love affair with high tech still lingers from 2000. I hear retail-types at my work talk about how great a time it was and how they all played the market. Of course they all have stories of woe and how they all lost a bundle!

After all, the products and services produced by these companies are what the everyday retail investors sees and uses the most. Apple, Google, Amazon...they see and use these and they invest. So the asset mania does not die easily. Yet the long term waves also shows that it does wane. The qqqq's are nowhere near their 2000 high (nor 2007 high) and are in danger of more hard down moves. These down moves will represent the final dying days of cycle wave c of supercycle wave (a) of the great asset mania.

When people realize that buying Apple at $175 is not a good thing if no one is willing to buy it at $180, eventually all things reach their limit. What choice do they have but sell?

So getting to the charts I have posted , first, the qqqq's are in the same basic count as the SPX: A triple zigzag to P2 peak. I have their P1 as truncating. It makes sense: If any sector was going to truncate at the P1 low, it would be the qqqq's. They did have a hard down wave (3) of P1 afterall and they represent the leading edge of bullishness. From the daily you can see where a ton of resistance overhead will be approaching. Basically it should stop the qqqq's. Once the qqqq's are stopped, they will signal the end of P2.

For if the best, most cash-rich sector who is still the object of remnants of the great asset mania and the source of speculative $$$ and bullish sentiment cannot advance through resistance, what sector will?

From a monthly standpoint you get the picture too. Again, look at my long term NASDAQ zigzag Supercycle wave (a) and you will realize that the qqqq's will be a big part of this decline.

The last P2 rally in the qqqq's retraced a hair over 61.8% Fib. The current rally is over 50% now and it may approach the same mark in one last fit of bullishness in the final Minor C wave of a triple zigzag. But technically, the qqqq's will be stopped. In addition, by EW theory terms, the qqqq's will be stopped and the great asset mania will burn out lower in cycle wave c of supercycle wave (a). Things are not good out there in the economy at all from my perspective.

And years from now when the great asset mania seems truly dead and buried, it will live again. Not at the levels of our greatest manic period but it will produce some nice uplifts. Our children and their children don't learn from our "mistakes". Nature rules the human species as a social unit.

I don't chart the qqqq's much but I never take my eye off of them. They are, indeed the spear point of the remnants of the great asset mania.

If you liked these charts hey, become a follower cause Kenny is trolling for more and surging ahead of me!
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