10% Downside Says Simpleton Elliot Wave Analysis
With the newswires relatively calm today, I decided to take a look at some charts. I came away with the impression that the worst is not over yet for the equity markets. I believe we are experiencing a temporary pause as major market participants determine which stocks they are want to hold onto from the rest, which they will unapologetically sell and hard.
Most of the financial carnage to date has been contained to the credit markets. Sure we have seen financials, real estate-related, and consumer discretionary stocks marked significantly lower but what we haven’t seen is an across-the-board repricing in the stock market to reflect the new reality of risk and availability of credit. Also, it is important to remember that debt is senior to equity. If corporate debt has been marked lower — which it has, as illustrated by the widening spread between yields on corporate debt and treasury debt — then the stocks should be considered that much less valuable as well.
One of my favorite trading vechicles is the Nasdaq100 — particularly the futures and ETF (QQQQ) underlying the index. Today I will feature a speculative look into the future for the NDX. The chart is projecting a downside target on the NDX of around 1733 based on the assumption that an additional wave lower, wave five, will trade in similar fashion to the third wave lower. This, admittedly, is extremely simplistic technical analysis however it demonstrates a sort of emerging synergy. Wave three was about 190 points. A move lower of similar scope would represent almost precisely 10% of additional downside and park the market down about 15% from the local highs and close to flat for the year.
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