Thursday, February 9, 2012

$NDX (QQQ) "dog caught car" met target - now what?

Today the QQQ (ETF tracking the Nasdaq 100 ($NDX)) practically hit the $63 level that's a measured move out of the late 2011 consolidation, if it was an Elliott Wave triangle.

It's potentially a situation where the dog chasing a car suddenly catches the car - so, now what?! Well, it's true that the triangle/target idea isn't shared by all Elliott Wave analysts; but I think it may be valid. You can even see it in the pattern traced in the P&F chart here. The consolidation during the second half of 2011 can meet the requirements of a standard contracting triangle that ended in late December. The move up since then does fit with the standard fifth-wave "thrust", and the measured move for that thrust targets almost exactly to $63 for the QQQ.

Candidly I'm sorry I didn't cover this scenario sooner for my readers, because it would have been a much clearer roadmap. At this point, however, we can assess what should happen next if the triangle & thrust is correct. It would mean a drop to retest the triangle apex area, about $56. Interestingly, the $56 area would also retest QQQ's 38.2% retrace level to its all-time high. Only after that would it then bounce, and then either vault higher again ($67 and $78 come into focus, actually); or roll over again, so losing and going under $56 would point to more bearish lower levels (perhaps the mid-line of that large uptrend channel on my monthly chart; or even the bottom trendline since the pattern from late 2008/March 2009 may be a leading diagonal that corrects with a deeply-retracing second wave).

But is it ready to sell? Sure, it's possible price wants one last push up. But we can consider selling rallies with a backstop agains today's high. We have indications from other work, like John Hampson of Amalgamator that geocosmics signal a significant drop here. There are also other indications this index has hit a target level from which it can correct. One is that the $NDX did meet the default Point-and-Figure (P&F) target featured at - see the P&F chart above/right. Also look at my monthly $NDX chart below. The index is grazing up against its 50% retrace to its all-time high, IF you calculate the all-time high based on closing monthly-bar levels (and not intra-month spikes). The comparable level for QQQ is about $62/$63, reinforcing the potential for a return to retrace the 38.2% level about $56/$57. It's also pretty close to the upper trendline of a parallel uptrending channel. And the indicators are showing some negative divergence:

And below is the bullish percent chart ($BPNDX) showing the percentage of Nasdaq 100 stocks sporting bullish P&F targets of their own. Not only is it starting to falter above the 80% mark (technically it must fall under 80% to be a sell signal). Its StochRSI has just fallen down - that's one of my favorite indications that the index is in trouble and turning. It doesn't say the turn is immediate. So let's watch (or go into sell mode, all things considered), looking for a reversal trigger close lower. The reversal pattern will then generate its own stop-loss level based on the high bar of the expected daily-chart reversal pattern.

No comments:

Post a Comment