The NASDAQ 100's chart below shows that prices fell as expected from the Head & Shoulders top formation. The drop was substantially below the neckline, below 1,590, completing and confirming the pattern, which means we now have a high probability that the NDX will decline to the minimum downside target of 1,550. This is arrived at by measuring the distance from the neckline to the head, and subtracting that from the neckline. From Wednesday through Friday, the NDX attempted to climb back above the neckline, but this effort failed - which is Bearish.
But this presents a compounded problem. The probability is high that the NDX is headed for 1,550 soon, however worse, 1,550 is the bottom boundary of the rising trend-channel since the April 29th low. Should the decline bust below 1,550, we are facing weakening support. All that would be left is the 200 day moving average at 1,532, then it is gang way below.
The Elliott Wave count for the NASDAQ 100 on the next chart shows that the wave 2 Minor degree top, a correction of the wave 1 decline from December 15th, 2004's 1,635.70 Primary degree wave (2) top, occurred on August 2nd, and the price action since then has been a Submicro degree wave {1} down, and {2} up. Wednesday August 10th's reversal marked the start of wave {3} down, and since then we've seen the first two waves of lesser degree.
1,550 is also an important target per the EW count, a possible target for {3}, as wave {3} would be 1.618 the length of wave {1} down at that level, although the first level of support is sooner, at the neckline of the Inverse Head & Shoulders pattern, around 1,570ish, and then the 50 Day Moving average, around 1,560ish. It is looking more and more likely that the Bullish Inverse H&S pattern is going to fail. Had this pattern cropped up at the end of a decline, it would have more reliability, however instead of occurring at a bottom, it is coming after a long run-up in prices.
We have developed buy/sell signals with remarkable correlation to stock market price movements, including the Blue chip stocks, techs, and HUI Amex Gold Bugs Index. Serious Traders, Investors, Advisors and Market Students should find these buy/sell signals invaluable.
What are these unique signals and why do they work? We have two independent indicators for each of three major equity market indices: The large cap DJIA/S&P 500, the NASDAQ 100 (which mirrors the QQQQs), and the HUI Amex Gold Bugs stocks.
The first indicator is a Stochastic that measures price and breadth momentum. When a Fast measure of this Stochastic crosses decisively above a Slow measure of same, we get a momentum "buy" signal. When the Fast crosses decisively below the Slow, we get a "sell" signal.
The second indicator is a confirming Purchasing Power Indicator™. This proprietary indicator measures the "power" behind a stock market move. It considers price, but also other factors that are building blocks of supply and demand. This is an amazing tool that generates "buy" signals when the power behind a move is so strong as to suggest that the probability of a multi-week or significant multiday rally is very high. It generates a "sell" signal when it identifies when the power behind a move is strong enough to result in a multi-week, or significant multi-day sell-off.
Because there are no guarantees in life, one benefit of the PPI signal is that if the market decides to take a bizarre twist against the signals, this indicator is smart enough to pick up the changes quickly before too much damage can be done and reverse course.
There's no guessing with these signals: they are cut and dried indicators, objective. Opinions, judgments, and investor bias is stripped away. Correlation has been nothing short of remarkable.
Here's how we like to apply these signals: When both the Stochastic and Purchasing Power Indicators issue new "buy" signals, we like to take a long position in the expectation of a rally. When both generate new "sell" signals, we like to go short, or step out of the market and wait for "buy" signals to reappear, anticipating a correction lower. We recommend always using stop losses.
Unique to these indicators, they have done an amazing job identifying prolonged "sideways" moves in the market. The probability of a "sideways" move occurs when one indicator is on a "buy" and the other is on a "sell." We are not aware of any other market analysis service out there that identifies high probability "sideways" moves. This information is critical for options traders as options lose value during lengthy sideways moves. In the options buying world, Bears win, Bulls win, and Sideways lose.
Here's the first of our two NASDAQ 100 trend-finder indicators as of August 19th, 2005, both remaining on "sell" signals Friday night. For the first one, the NDX 14 Day Stochastic Fast measure comes in at 34.00, the Slow at 33.00. Although the Fast is a hair above the Slow, it must rise decisively above it to generate a "buy," which it has not yet done. Correlation of these signals with price movement has been good, as indicated by the thick yellow directional arrows.
The second indicator, the NDX Purchasing Power Indicator™, comes in Friday evening at 63.53, and would need to rise 6 points to 69.53 to generate a "buy." Again, excellent correlation with price movements as pointed out by the thick yellow arrows. Thus with both key indicators signaling "sell," the odds are high that further decline is coming over the next several days and perhaps weeks. Since the Stochastic generated a sell on July 21st, 2005, the NDX fell 29 points, and is down 1.8 percent. Same is true for the PPI. Since it generated a confirming "sell" on August 5th, the NASDAQ 100 has fallen 29 points, or 1.8 percent.
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Since 1999, this has not been a buy and hold stock market, not with the S&P 500 still down 21 percent, the Dow Industrials still down 10 percent, and the NASDAQ Composite still down 58 percent, and the NASDAQ 100 down an exact 67 percent -- over the past six years. No, it is a timing stock market, a trader's market, and that looks to be our future. In this stock market environment, to make money, good buy/sell signals are critical.
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"And as Jesus was about to go up to Jerusalem,
He took the twelve disciples aside by themselves, and on the way
He said to them, "Behold, we are going up to Jerusalem;
and the Son of Man will be delivered to the chief priests and scribes,
and they will condemn Him to death.
and will deliver Him to the Gentiles to mock and scourge and crucify Him
and on the third day He will be raised up."
Matthew 20: 17-19
"And though they found no ground for putting Him to death,
they asked Pilate that He be executed.
"And when they had carried out all that was written concerning Him,
they took Him down from the cross and laid Him in a tomb.
But God raised Him from the dead;
And for many days He appeared to those who came up with Him
from Galilee to Jerusalem, the very ones who are now
His witnesses to the people."
Acts 13: 28-31
