What Gann's Square-of-9 means for the Nasdaq 100

Does this portend a change of direction for the Nasdaq?

Ellioticians and Gann analysts, who traditionally rely on equity values to project markets’ trends, need to be aware that this article focuses on interval duration rather than price ranges. This is because coordinate X of time progresses steadily forward and is void of coordinate’s Y volatility. Price (Y) is an integral function of time (X), as is time of price. Likewise, the terms ‘short’ and ‘long’ in this article refer to spans rather than to ‘buy long’ and ‘sell short’ orders.

Given that the Elliott pattern unfolds over various phases of the economy, each phase is dominated by different economic fundamentals. Each therefore becomes subject to its own, and often complex, rules. Wave I forms the cycle’s visionary phase as it emerges from the doldrums of a preceding bear market. The breadth of Wave III demonstrates a lengthy expansion and growth, whereas decadence and decay accompanied by skyrocketing stock values distinguish the final stages of Wave V. The bear market’s ‘A-B-C’ correction is the cycle’s vacuum cleaner. As it drags equity values back to realistic levels, it roots out corruption and restores transparency and trust. The final stages of bear market’s Wave C pave the way for visionary Wave I of a new cycle to emerge.    

The Nasdaq’s advance from its 1985 low to the 2000 dotcom peak corresponds with Elliott’s definition of bull market Wave V. After 15 years of uninterrupted growth, heavily overpriced dotcom stocks plummeted almost to the levels from which they took off. 

The 2000 – 2003 Wave A’s decline was the first leg of an ‘A-B-C’ bear market, still underway. Wave B, now in its topping stages, has dominated the advance of 2003 -2013. Bear market Wave C is due next (Figure 3). 

Bull market Wave V, which measured 5442 calendar days (cd), and the corrective 902cd Wave A that followed, culminated approximately at the 6.18% Golden Mean ratio (5442 /902cd =6.03 ~ 6.18). Likewise, the 5442cd span of Wave V, and the combined Waves ‘A - B’ 2623cd duration (902 + 1721) ─ in itself, bordering on the Golden Mean value of 2618 (1.6182) ─ formed a 50% advance/decline ratio (5442 / 2623 = 2.07).

 

Figure 3 – The Golden Mean 38.2, 50, and 61.8% support/resistance levels of the Nasdaq 100 Index

 The Nasdaq’s Wave B can be identified by the three lesser-degree wavelets, ’a-b-c’, which in contrast to the 1985 – 2000 sharp upward impulse, and the 2000-2003 steep decline, formed a scrambled zigzag pattern from beginning to end (Figure 3, above).

What stands out most is that on Aug. 10, 2013 wavelet c was equal to a’s span, each 1721cd long (Figure 4, below). The number 1721 approximates the numeral 1723 on the Square’s south-western diagonal (Figures 4 & 5).Since wavelet ‘a’ fell 2cd short of 1723, ‘c’ could run for a few more days without upsetting the balance. It may well terminate around August 16, 2013, in line with the S&P500 Index.

Pricewise, wavelet ‘a’ gained 1,111 points, whereas ‘c’, based on the highest closing price of 3,141.00, has, thus far, added 2,115. In the unlikely event of ‘c’ gaining 107 more points, by reaching the 3248.00 level, their price ratio will be 1:2 (1111/2222).

 

Figure 4

The top right corner of Figure 4 shows the formula n(n+1)+1 for determining the numerals of the Square’s south-western diagonal [where ‘n’ is a whole number integer representing the square root of the span (√3774=61.4; 61 x 62 +1=3782)].Note that the square root 61.4 approximates 61.8. At 3774cd, the numeral is too large to fit A4 page.

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