NDX lost 83% of its value between 2000 and 2002.  Its 2007 high came close to retracing a Fibonacci 38.2% of the losses before the next crash lopped 56% off the top.  Now, as it tags one important Fib level and approaches another, is there another big correction around the corner?

What does it mean that the latest red channel — parallel to the one formed off the 2002 low — just broke down?

The major channels generated by NDX’s 1994, 2000 and 2008 lows are shown below in white and purple.

NDX just nudged the purple midline, and is closing in on the white .382 channel line.  But, the placement of very long-term channels is subject to interpretation/error, and being “just a little off” can lead to large errors in forecasts.  So, we look to other indicators for confirmation.

A large Crab Pattern (in white) dating back to 2007 recently completed at 2993 — very close to where the purple midline crossed.

The May 22 high of 3053 would be a relatively easy “top” call if not for the fact that the yellow IH&S target is still a few points away at 3100 and the .618 retracement of the drop from 4816 to 795 is 227 points away at 3280.

NDX reacted nicely at 3053, shedding 228 (7.5%) before beginning a rebound that, like SPX, recovered slightly more than .618 of the losses.

So, top or not?

continued for members…

I wish I could say the charts are crystal clear on this.  Even after 5 hours of study, I can’t say for certain whether a big correction is underway or will wait until after a tag of the yellow .618.

Note that 3280 is about 10.4% higher than current prices — roughly the same as 1823 is to SPX (1823 is the 1.272 extension of 1576 – 666.)  So, when we talk about 3280 in NDX, it’s about the same as tossing around a 180-pt increase in SPX — not exactly small potatoes.

I suspect it will depend largely on what Bernanke has to say on Wednesday.

Short-term

There’s been an obvious megaphone pattern (descending broadening wedge) setting up since May 22.  NDX tagged the upper bound again today.  A breakout should be expected to reach either the .786 and .886 retracements.

Harmonics favor the .886 Fib at 3027.48 over the .786, though either would be perfectly legit.  The midline of the small white channel crosses the .886 on Jul 15, which has been popping up on many of my charts as a turning point.  So, until the market shows otherwise, I’m going to treat today’s 2979 high as an interim step on the way to 3027 in the next day or two.

The Fed releases minutes from the June 18-19 FOMC meeting on Wednesday.  The pattern lately has been to ramp as much as possible leading up to announcements — just in case.  So, that also favors a modest pullback at most before a move to 3027.

Although, if the news is going to be bearish, we could see the reverse course of action — as they prepare to let us down easy.