Nasdaq’s early short sellers might come up short.
Last week, the Nasdaq Composite index climbed to 5912, so if you are getting ready for the 6000 mark soon, you are probably not alone. Like the other two major U.S. stock market indices, the Nasdaq bottomed out in March, 2009, and has been rallying ever since. Its epic journey to the north began eight years ago from 1265.50 and still continues. And while the majority is bullish just because the price is rising, we will try and determine what is left of that uptrend, by applying the Elliott Wave Principle on the weekly chart of the Nasdaq Composite.
The weekly chart above visualizes the entire eight-year-old advance. According to the theory, trends move in repetitive patterns, called impulses and this chart allows us to easily recognize one, whose fifth wave – (V) – is still under construction. The two corrective waves even obey the guideline of alternation, since wave (II) could only be seen as a running flat, while wave (IV) is a simply zig-zag. Also, the uptrend appears to have been developing within the parallel lines of a channel. Wave (IV) breached its lower line in the so-called throw-under, which is an indication that we could expect a throw-over near the end of wave (V). But even if the bulls fail to reach the upper line of the channel, they should still lift the index higher, since a couple of fourth and fifth waves within wave (V) remain. The natural projection suggest the Nasdaq Composite is likely to approach 6500 from now on.
Many say we are in a bubble again and they might be right. However, in our opinion, the bubble is not done inflating and those, who oppose it by selling short, better have deep pockets, because the bulls do not seem to be ready to give up yet. The Nasdaq in particular, could add another 10% to 12% before the bears arrive.