Fibonacci, Bats and Waves Point Much Higher for the Nasdaq
- Posted by Greg Harmon
- on July 24th, 2014
The longer term view of the Nasdaq 100 ETF, $QQQ, is really strong. And despite the math involved it is a really easy chart to interpret. Take a look.
When you bring up the topic of Harmonic patterns or Elliott Wave principle at the dinner table or even a gathering of market technicians eyes start to glaze over. But the pictorial view is really simple to interpret. First, both are built on the back of Fibonacci ratios, discovered nearly 1000 years ago. It was noted that these ratios not only draw really cool patterns, but can be used to describe nature and the actual Fibonacci numbers themselves appear in nature everywhere. But I digress. Just take it that Harmonics and Elliott Wave are based on observed science and not just made up.
When applying them to the monthly chart of the QQQ a simple analysis shows a Harmonic Bat that has a Potential Reversal Zone at about 110. Translation: from prior patterns the current leg could go to 110 if the pattern holds. Now looking at Elliott Wave, the 5 wave impulse series seems to have started at point A following the dot com crash. The first retracement wave #2 was deep, which in Elliot Wave terms suggests that the next one will be flat. The major Wave #3 that is in process could certainly end at point D, which would be about 238.2% of the first Wave (a Fibonacci extension). A flat corrective wave #4 from there and then Wave #5 higher to complete the impulse could see 140 or more.
Not as complicated as it seems. But these patterns on longer charts can help drown out some of the day to day noise.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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