Elliott Wave Forecast, S&P500 and Nasdaq Composite Part 2

If you have been observing the markets for over a decade, you’d probably agree with me that the indices seem to change in unison except for very rare occasions such as during the “.com” boom where the technology stocks seem to outperform all other sectors for months. We used to call it the “new economy” to signify that commerce from the late nineties would depend mostly on the internet. They “old economy” was everything else, including blue chip stocks, commodity-based companies and manufacturers, among others. Not surprisingly, when the “.com bubble” burst, the nasdaq composite lost value that had accumulated at a logarithmic rate. Since 2002, the Nasdaq composite returned to change at a pace similar to that of the S&P500. So how does the Elliott wave theory reconcile the two charts (1999-present)? Easy. They are both corrective patterns. While the S&P500 is a FLAT, the Nasdaq looks more like a yet-to-be completed zigzag.

Below is the chart of the Nasdaq Composite. I have taken the liberty of applying a log transformation to the prices. This technique is commonly used for stocks with strong growth (and decline) over a long period of time (close to 10 years in this case). Although not necessary, the technique helps visualize the pattern. I also applied a Fibonacci study to evaluate the retracement of Intermediate Wave A. First, Wave A, from 1999 to 2003 is a Double zigzag(a1-b1-c1-x-a2-b2-c2). The double zigzag is also known as the Waterfall pattern. It is an atypical pattern which may appear in the place of an impulse or in the place of a zigzag. In this case, Wave A is the first wave in a long-term Zigzag, which is near completion. Note that wave B of this Zigzag does not exceed the 61.8% of A, which serves as evidence that the entire correction is a Zigzag. Intermediate Wave B (from 2002 to 2007) is also a zigzag itself, and matches very well the pattern in the S&P500 during that period. Both are zigzags.

More importantly, both the Nasdaq and the S&P are in the process of completion of intermediate wave C, and in both cases, these are impulse waves, with a wave 4 in progress. Take a look at my previous article, and compare both charts from the 2007 highs. Once the 4th wave is completed, one last wave down, to exceed the March lows should bring the bear market to a close. It is just a matter of time. At least, that is what my current analysis indicates. We know this from the chart below and the minimum requirements for the completion of a zigzag. Wave C must retrace wave B completely and exceeded by at least 1%. that means that until the Nasdaq has broken below the lows of 2002, even if it is by a small amount, then we cannot say that the zigzag is completed, and therefore the bear market is still on.