A Beautiful Picture For the NASDAQ

By: Robert McHugh | Sun, May 29, 2005
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There is an incredible geometric 3 dimensional pattern evident in the $NDX by connecting closing tops and bottoms over the past seventeen months. If we count by trading days, if June 4th, 2005 is the next top, we get a perfect parallelogram (red lines), and a perfectly designed 3-D Triangle (Blue Lines). The thing looks like it is suspended in space. We have marked the number of trading days for the distance of lines measuring tops to tops, bottoms to bottoms, and bottoms to tops. Notice the interrelationships of the lines. Every line's distance in trading days is part of a function to calculate another line's distance using only the trading days identified within this pattern. Does this look random? The right side's relationship with the left, 83/138, approximates a phi .618, and the bottom's relationship with the top, 180/235, approximates the square root of phi, .786. June 4th should be one exciting day.

The chart above (courtesy www.stockcharts.com) shows the NASDAQ 100 index finishing up Minuette wave ii. We've seen a five-wave impulse decline from the first of the year to late April, followed by a corrective rally that is almost complete. Next - although its start could be a week away - is a sharp sell-off as wave iii unfolds.

Wave ii has taken on the shape of a Rising Parabolic Spike Arc. Here's what we know about such vertical patterns: When prices are going virtually straight up (its slope is substantially steeper than the normal 45 degree ascension), we know that the next major move will be straight down. The only uncertainty is how high will "up" be? Vertical ascensions do not normally last very long. There will be no soft landing for this pattern. The Beautiful Picture Triangle/Parallelogram suggests prices could rise to just below 1,600.

The point where wave "c" is 1.618 times wave "a" was at 1,544.50. A .618 retrace of the decline from December 15th 2004 to April 29th, 2005 was at 1,543.50, essentially the exact same place, evidence that markets seek order. We reached a high of 1,551.12 Thursday, a hair above these targets. The 50 day moving average is below the NDX's 200 day MA. This cross-under has increased to 1.6 percent during this parabolic rally, very close to what we would consider a decisive cross-under. This signals lower prices ahead. The wave ii rally was able to get these two simple moving averages to curl up, but failed to pull the 50 day above the 200 day.

At the top of this page we see that the current rally is drawn toward the underbelly of the longterm rising trend-channel from March 2003, and a second trend-line from October 2002. This offers significant resistance. In fact, prices were stopped cold this week by the March 2003/August 2004 trendline. The RSI is overbought and the MACD Histograms are shrinking, indicating upside momentum is waning. This weekly bar chart shows that volume has been declining during the latest rally.

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"The lot is cast into the lap,
but its every decision if from the Lord."

Proverbs 16:33

Here's the color coded, legend we use for our Elliott Wave count symbols, starting from the largest degree waves to the smallest:
  Impulse Waves Corrections
Grand Supercycle {1} to {V} {A} to {C}
Supercycle (I) to (V) (A) to (C)
Cycle I to V A to C
Primary (1) to (5) (A) to (C)
Intermediate 1 to 5 A to C
Minor 1 to 5 a to c
Minuette i to v a to c
Micro 1 to 5 a to c
Subnmicro {1} to {5} {a} to {c}
Nano {1} to {5} {a} to {c}



Robert McHugh

Author: Robert McHugh

Robert D. McHugh, Jr. Ph.D.
Main Line Investors, Inc.

Robert McHugh

Robert McHugh Ph.D. is President and CEO of Main Line Investors, Inc., a registered investment advisor in the Commonwealth of Pennsylvania, and can be reached at www.technicalindicatorindex.com. The statements, opinions and analyses presented in this newsletter are provided as a general information and education service only. Opinions, estimates and probabilities expressed herein constitute the judgment of the author as of the date indicated and are subject to change without notice. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice, nor is it to be relied upon in making any investment or other decision. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Neither Main Line Investors, Inc. nor Robert D. McHugh, Jr., Ph.D. Editor shall be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided.

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