March Commentary

This month we will concentrate on the NASDAQ as it touched a support level again. It is the third time this support level is being tested. How significant is this situation? We all know that a support or a resistance takes more importance when it is tested time after time, the longer it has been established and the stronger it is. Strong in what way? There is sufficient reaction to prevent the price from crossing this treshold but more important, if the price finally penetrates this territory we have a significant trend change. The price level of 1900 that used to be a resistance has supported the price for the last 2 months, as traders our question is where is it going? Is the support going to hold much longer or should we prepare for a trend change?

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In retrospective we had seen this situation last month but we were looking for a target of 2000 before the correction. This last word is a key word for Elliottists. We are in a pattern that spreads over many months and where we might be at the end of a 3rd wave of an extension impulse. An impulse is composed of 5 waves not 3. There are precise rules that must be observed and one of them is that a wave 4 should not retrace in wave 1 territory. If this was the end of wave 3, this rule would be broken and we would look at a change in trend. So although these statements look contradictory, they are not; they establish the ground from which our analysis must start. The rules do not dictate the market but merely indicate boundaries beyond which our view must change. Here we must assume that a breach in the support will translate in more than just a wave 4 correction. So we prepare for a change of trend if price drops below 1900, otherwise our wave 3 keeps testing 1970 and should eventually prevail.