NASDAQ Price Target

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I mentioned yesterday calculating a P&F price target on the NASDAQ. The attached image shows a traditional 3-box reversal Point and Figure chart of the NASDAQ index from StockCharts.com. Near the middle of the chart are two green lines showing the P&F upside targets of the September 2010 breakout of a base formation. Near the right side of the chart is a red line showing two downside targets.

There are two basic ways to compute price targets on P&F charts. One using horizontal counts and one using vertical counts. Horizontal counts can be computed at the moment of a buy signal in a bottoming or topping formation. The basic procedure is to count the width of the pattern (number of boxes) from OOO wall to XXX wall multiply by three and multuply by the box size and add to the OOO column bottom price on the left side (or XXX column top price for downside targets). This produced 2400 last September. This price was reached in October in a consolidtation region. The breakout run up series of XXX's allowed a vertical count price target of 2860. We use a similar process to count the XXX breakout column multiply by box size, multiply by three and add to bottom price of the prior OOO column. This led to 2860. The NASDAQ topped at 2887.75. Both of these projections led to meaningful targets on the way up.

On the downside if this is to occur you can see that the NADAQ produced a double bottom sell signal in June of this year and we are still on that sell signal. The horizontal count method produces a first downside target of 2250. That vertical column of OOO's that created the sell signal produces a downside price target of 2100. The expectation is that we drop to 2250 and consolidate before dropping to 2100, similar to what happened on the way up. These price targets are equivalent to Fibonacci retracements of 39% and 49% of the move from the 2009 bottom. Both seem reasonable on this basis. If we drop straight down from here without a reversal column of XXX's we can calculate another downside target based on a new column of OOO's. Only a double (triple) top breakout at the 2900 level will negate these targets.

Thank you Mike for your P&F diagram and explanations.

I have read on P&F and it is quite amazing how often they are accurate.

Overall, I have notice the same things you have pointed out about the market and share your views.

Since I am a true believer in the 17 yrs cycle, I believe that we will get a significant new bottom in the next few years before a new long term bull market emerges. The coming correction could be the start of that move.

Normand