Nasdaq, End or Beginning ? by D Solin Partner, Foreign Exchange Analytics

The QQQQ (Nasdaq 100 etf) continues sharply higher from the March 17th slight new low at $41.05, currently taking a run at the Feb 1st high at $45.88. However, a number of factors argue that trade since the Jan low at $41.61 may be a large correction (wave 4 in the fall from the Oct high at $55.07) with new lows after (within wave 5, see “ideal” scenario in red on daily chart below), and not the start of a major new upleg. *For those familiar with Elliott Wave analysis, it appears to be an irregular correction (a-b-c, see numbering on daily chart below). The QQQQ (Nasdaq 100 etf) continues sharply higher from the March 17th slight new low at $41.05, currently taking a run at the Feb 1st high at $45.88. However, a number of factors argue that trade since the Jan low at $41.61 may be a large correction (wave 4 in the fall from the Oct high at $55.07) with new lows after (within wave 5, see “ideal” scenario in red on daily chart below), and not the start of a major new upleg. *For those familiar with Elliott Wave analysis, it appears to be an irregular correction (a-b-c, see numbering on daily chart below). This type of correction breaks down into 3 waves of 3-3-5 subwaves, and explains the 3 wave fall to the $41.05 low. Also, a favorite indicator/leader of the broader stock for me is the semi-conductor etf (SMH). This market continues to form a large pennant/triangle since Jan (see 2nd chart below), generally seen as a continuation pattern and suggesting an eventual downside resolution. With the SMH currently trading near the top of the pattern, it adds weight to the view that the qqqq may be near an important top and not at the start of a major new upleg. Finally, the qqqq is overbought after the last few weeks of sharp gains, and is approaching key resistance in the $46.25/50 area (38% retracement from the Oct high at $55.07, rising trendlines from both Feb 1st and mid March), while the Dow Jones Industrials is approaching the top of its range since Jan at 12765/00. Bottom line, don’t view the last few weeks of sharp gains as the start of a major upleg, but part of a larger “irregular” correction with eventual new lows below $41.05 after. For now, want to be short here (currently at $45.85) for new lows below $41.05. Initially stop on a close above the $46.50/75 area (good risk/reward) as there is some risk for more topping and further slight new highs.

Longer term, the bearish view since late last year remains in place (warned of a top for at least 12-18 months). However, another decline to new lows would be seen as the final downleg (wave 5) in the fall Oct high at $55.07. But for now, would maintain the long held, longer term bearish bias. Key longer term support remains at the previously broken base of the bullish channel since Oct 2002 (currently at $42.70), $41.05/45 area (March low and the 200 day moving average which has held a number of times recently, see weekly chart/3rd chart below) and $37.25/50 (50% retracement from the Oct 2002 low at $19.59.

David Solin
Partner, Foreign Exchange Analytics

Foreign Exchange Analytics has it's roots in both the emerging information technologies and the global economy that characterized the last two decades.  As currency transaction volumes soared in the wake of the 1985 Plaza accord, the need for timely concise information on what forces were driving and would drive exchange rates became critical.   David Gilmore was one of a new breed of analyst that saw a void of relevant, market moving... More