Nasdaq, another sharp move coming but...
In the Nov 6th email on the Nasdaq 100 etf (qqqq), warned that the market was forming a topping pattern with a break below the bullish trendline from late Oct potentially triggering a further downside acceleration. The market broke below that support the next day, shorting on the intraday break (then at $53.90), and before tumbling to the Nov 12th low at $48.65. The market has since chopped in a tighter and tighter range, and appears to be forming a pennant/triangle since (current base at $48.85/90, ceiling at $50.25/30, see daily chart below). These are generally seen as continuation patterns, suggesting an eventual downside resolution. For now, would use a close above the ceiling of the pattern as a sign to take profits, but will want to lower it to something more aggressive on a downside resolution as it may be sharp, but short-lived. Support below the base is at $48.65 (Nov 12th low) and the bullish trendline from July 2006 (currently at $48.10). Be warned however, that the Dow Jones Industrials is forming a large falling wedge for the last few weeks, generally seen as a bottoming pattern that resolves sharply higher (see 2nd chart below). Being a contradiction directionally to the pattern in the qqqq, it does lower the likelihood of the downside resolution, but in either case it does suggest a sharp move may be approaching. Also note the correlation between the stocks and $/yen, yen crosses, and would look to the resolution of these patterns in the equities as a leading indicator/confirming indicator for the yen’s direction.
Longer term, the market did indeed tumble from the late Oct test of the ceiling of the 5 year bullish channel (then near $55.00) and has likely completed the 5 wave rally from at least the July 2006 low at $35.54 (and potentially more, see numbering on weekly chart/3rd chart below). This suggests at least another few months (or more) of downward chopping toward $47.60 (38% from $35.54) and even the base of the multi-year channel (currently at $53.00). However, this period of correcting is likely to be choppy and time consuming, so for now would trade longer term ranges with a downward bias (versus sell and hold) or would trade the shorter term view above.
