MASTERING
THE TRADE
ORIGINAL, INTERACTIVE SEMINAR ON TRADING USING
TECHNICAL ANALYSIS 

 SEC FILINGS

Reality Check Charts
a weekly feature

The Nasdaq Composite has remained the only major market average to continue making new highs, virtually ignoring the literally everything around it. These include the Federal Reserve’s tight monetary policy (for almost a year now), an over-heated economy (lead by over-indebted consumers, whose confidence recently hit the highest extreme ever!), incredible overvaluation (estimated at better than 200 X’s current earnings), extreme bullish sentiment, and well established bear markets in all other US equities.

Our Elliott Wave analysis suggests that the NASDAQ Composite will soon join the ranks of the others in its inevitable bear market. It will perhaps, even play "catch-DOWN" by dropping violently to get in line with the declines of the other market averages.

Mentioned above is the statement that the NASDAQ Comp’s P/E is "estimated" to be above 200 X’s its total earnings. We can only estimate this because the NASDAQ has refused on several occasions to answer our inquiry with a real answer. They did tell us that the P/E was 92 but this was only based on the companies within the NASDAQ that had "positive" earnings, completely disregarding all of the companies that were losing money. We consider this "an omission of a material fact", a clear violation of the N.A.S.D.’s own rules (if a broker or investment advisor would get caught doing this they would be fined and lose their license).

Getting back to the issue, prices are trading within a more and more narrow band of support and resistance. This is known in Elliott Wave terms as an "ascending diagonal triangle". It is considered a clear terminal rally phase and has the highest probability of resolving itself by breaking DOWN out of the lower support line.

Next, notice the intermediate degree 5 wave count [labeled 1 up, 2 down, 3 up, and then within wave 4, an "expanding triangle" (labeled a-b-c-d-e/4) that is outlined by the dotted lines that form the shape of a megaphone. Based on Elliott Rules, this chart formation only occurs within the 4^th wave of one larger degree. It should precede one final minor, sub-divided 5 wave rally to new highs, that can generally be measured by multiplying the depth of the triangle by 2. This may allow for a move above 4800, just 140 more points from this morning’s high, but this is not assured.

It must also be noted that within final 5^th waves, the sub-divisions should get increasingly hard to identify, more likely to fail, and a final thrust above the "upper" resistance line of the diagonal triangle is likely (happening with today’s gains). This is known as the "throw-over" and represents the final blow off of the entire rise.

Under this analysis, we should know in the very near future if the OTC markets will join the ranks of the other averages, who’s fates are already being determined! Please feel free to contact us at: mtr@fuse.net with any questions or comments, or if you would like to receive a free 2 issue sample of our Reality Check newsletter.

Best Regards,

Mitch

Mitch Harris, RIA

Editor, The Reality Check Newsletter

              Market Trend Realities (MTR) is a Registered Investment Advisory which manages personal, corporate, Trust, and retirement accounts on a fee only basis. Several low cost, flexible management fee arrangements are available. Investment Advisor, Mitch Harris has studied the Point & Figure Charting Method under the direct supervision of Michael Burke, Editor of the prestigious Investors Intelligence research organization. Management is based on a unique combination of technical analysis methods and tools which include, The Point & Figure charting method, Elliott Wave Analysis & techniques, industry group analysis, cycle analysis, Relative Strength Analysis, Stochastics, and investor sentiment studies. MTR offers a very uniquely structured managed mutual fund program using the RYDEX family of mutual funds, which offer outperformance potential whether equity markets are rising OR falling! Inquiries are welcome by calling us at (513) 421-8737, or by email at: mtr@fuse.net