This is the Nasdaq Composite index, known for its tech. stocks and .com’s. The constituting stocks change fairly rapidly as the darlings of yesterday, MSFT, CISCO, INTC etc. etc. are replaced or pushed aside by Google, Facebook, Amazon and so on. It is a continuous renaissance of sorts but the ups and downs should still be subject to the, entirely pragmatic, rules of EW.

    Under EW rules bull moves should subdivide in 5 separate waves and bear moves in 3’s. So if we are in a true bull move we should expect 5 waves up from the 2009 lows. So far there are only 3 so it would take a 4 and 5 still to complete. Given alternation, proportionality and all that other good stuff, the ultimate high could still be 6 to 9 years down the road.       However if we assume that this is part of the big bear move, that is a B-wave within a large flat A-B-C, than we only need 3 waves which we already have. The question then is simple if it is complete. Maybe yes, maybe no but a double top would certainly pose a lot of resistance. I remember the previous top as March 5 of 2000 as I moved from WG to DS on that day. Maybe the market wants an even number of years between peaks (4 weeks away?).

    Instead of EW we could try using Common Sense , a commodity that is seldom counselled in the financial world. To add a little perspective we have put a little red balloon and arrow to reflect the precise time when the Maestro, Greenspan, first uttered the earthshaking concept of IRRATIONAL EXUBERANCE. He said a few things at the forum where he was speaking that were and are of special interest, quote;  We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability.
But how do they know? Well they do not and that has become painfully clear since. But for the moment we are only concerned at what level in the chart things became irrational or exuberant or both. It would seem that if things were that giddy already then, that things must be as bad or worse now. And now we have Yellen who is determined never to see a bubble anywhere.

We will go for the B-wave. C to follow any time between now and early March. By the way, the bull case, is not a very good risk/reward proposition in any event! Nasdaq as compared to the S&P and DOW is shown below to add just a little more exuberant perspective.

And here is the Nasdaq (see previous blog for big picture). Again we have what looks like a triangle (which then must be either a B or a 4th wave, in this case clearly a 4th!). This confirms, at least to the extent possible, the counts on MSFT and INTC.

The tech stocks, represented by the Nasdaq, have enjoyed quite a bit of (irrational?) exuberance lately with the upcoming Facebook IPO, the Superbowl and  Greece’s soon to come “no-default” default. But the simple fact that this index is still down by 40% since the highs some twelve years ago, remains. Also, despite the longer timeframes involved,  the “picture” is essentially identical to most other indices and or individual stocks. The message is that this can turn any moment.

Some might argue that the market is full of negativity, pessimism and so on, but looking at the standard gauges like Put/Call ratios, sentiment indicators, volatility and so on , they clearly indicate the contrary. Not to bore the reader, we will show only two, the cash ratio at mutual funds in the US(see link),and a sentiment index for the Nasdaq; http://home.comcast.net/~RoyAshworth/Mutual_Fund_Cash_Levels/Mutual_Fund_Cash_Levels.htm

The sentiment is running at an all time high, at least for this 10+ year period. The cash levels at mutual funds are at an all time low at about 3.5% of assets held. The message here is that there is no one left to buy nor any money left to buy. Volatility – I am now boring you- that is now around 17 coming off 47 or so a few months ago, tells the same story;

Here I have overlaid the S&P onto a chart of the VIX, or volatility index. The current wisdom is that you should wait for the markets to calm down, which clearly is exactly what you should not do, at least not for the past 14 or so years. The zero line is just a base line set at the start of this chart, it does not represent a particular value! Note that when the S&P goes up, the VIX goes down and vice versa. This is logical as one should buy  when the proverbial blood is flowing in the streets. Obviously not now!