Last week's action can be summarized by one event: NASDAQ 2645 was taken out. To serious students of Fibonacci work, this event carries the same significance as if an all time high was taken out. This is so because many retracements on smaller time scales end at the 38% retracement. If you are an intermediate to long term holder of a security, it’s prudent to wait until a correction tests 38% to determine whether you should bail out. Strongly trending stocks will quit correcting at 38%. Conversely speaking, when a security takes out 38%, we must change our strategy if we don't want a winning trade to turn into a loser. When 38% is taken out, it either means the chart is going to a 61% retracement or it may not be a retracement at all. Keep in mind it took the Dow 25 years to get back to its 1929 high. At some point, people had to realize it was going to test that high when it took out the 38 and 61% retracement levels of the Great Depression. Also keep in mind, the Dow retraced 38% of its rise from the 1970s during the 2000-02 bear market.
It had an opportunity for a grand top right there but couldn't do it. Why not? The best reason I can give you is the time element didn't line up. The best pivots are always a combination of some price and time cluster. When one is missing, that's a sign that even if we get a turn, its of a smaller degree. For the most part, this has been the story for the past two months. Our best chance for a high in terms of the cycles was early to the middle of May, but the NASDAQ price structure wasn't ready. The NASDAQ, at least in terms of price, was ready last week. But because of the time cycles involved, the bull market still had a green light. If you've been reading my columns, articles and now the book you know that when time is up, time is up.
But we do have an interesting set of near term calculations lining up for this week. Many of you probably headed out to your local casino last Saturday to take advantage of 7/7/07. What many of you didn't realize was the Friday saw the 777th hour of the current trend in the NQ. But Wednesday is 7/11— A Lucas Day. Perhaps more important is the fact its the 89th trading day off the March 5th low in the NQ/NDX. Here's another calculation for you: My work gives special weight to Fibonacci extensions. I believe that its the correction that acts as a coil to fuel the next leg of the advance. I give credit to Pesavento for this knowledge but I'm sure he learned it somewhere as well. In any event, the next important technical marker in the NASDAQ is 2679 which is the 2.618 price extension off the correction in 2005 from old high 2191 down to 1889 which is the April 2005 pivot low.
On a smaller scale, the NQ will open the week 60 hours off the June 27th low and also will be 260 hours off the May 24th pivot low. I would look for a high by 10 a.m. CST and if we don't get it, a high by Wednesday. If we do get it, there is a chance the 89th day can create a low. But since 2679 is the next important technical marker, you should watch to see if it happens to line up with the window tomorrow morning. If it does, something larger may be developing and we could get a pullback into the 89th day off the March 14th pivot instead. There's a six-day lag between the two pivots so if we were to hit a high in the first three hours tomorrow and the NASDAQ were to reverse at 2679 it could lead to a correction lasting well into next week. See how important it is for price and time to line up? If not, we may only get a short pullback.
We should have better activity this week as traders return from short or extended vacations.
If you've been on vacation, my book and DVD are now available right here at the Futures online bookstore. Those of you who get promotional emails from Futures may have seen how they've featured my work along with all of the specials they are running this month. I will be taping an interview on 1510 KFNN Financial Newsradio in Phoenix this week. Stay tuned to my own emails for further info on that.
