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NASDAQ: Watch a “Trend Channel,” See What’s Next

Useful insights into trend channels from the “Father of the Elliott Wave Principle”

by Bob Stokes
Updated: January 03, 2020

Patterns in financial market price charts repeat themselves over and over again because investor psychology never changes.

The "Father of the Wave Principle" -- Ralph Nelson Elliott -- began a detailed study of these patterns some ninety years ago when he was recuperating from an illness.

One of Elliott's many observations was mentioned in the Wall Street classic book, Elliott Wave Principle:

Elliott noted that a parallel trend channel typically marks the upper and lower boundaries of an impulse wave, often with dramatic precision. You should draw one as early as possible to assist in determining wave targets and provide clues to the future development of trends.

The initial channeling technique for an impulse requires at least three reference points.

By the way, an "impulse" wave is a wave that moves in the direction of the main trend, as opposed to a countertrend wave.

Our Dec. 30 U.S. Short Term Update discussed a parallel trend channel in regard to the NASDAQ 100. Here's a chart and commentary:

channel-full

Today's decline pulled the [NASDAQ 100] firmly back within a parallel trend channel that has governed prices for the past three months. The index is trading at the midline of the channel now...

The Dec. 30 U.S. Short Term Update also gave subscribers further analysis, which included price targets and an overall forecast for the NASDAQ 100.

Of course, the NASDAQ 100 is a tech-heavy index, and some investors expect the sector to be rewarding as we slide into 2020. Here's a Dec. 31 article excerpt from The Street:

Many of the large cap top names in the tech space are trading at all-time highs with strong momentum headed into 2020. Investors are piling into names that offer the perception of reliable growth.

The technology sector may indeed reward investors in the new year.

But markets love to surprise. That's why keeping an eye on the chart patterns of the main stock indexes -- the patterns of investor psychology -- may be a good idea as we start the new year.

After all, no investor wants to be caught off guard by the broad market's next big move.

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