PowerShares QQQ Trust, Series 1 (ETF)( QQQ): NASDAQ 4,000? Maybe, But Not Today – A 3T Analysis

Just how low can it go? That has to be a question many investors must be wondering about the NASDAQ. Let's take a 3-T look at the index and try to answer the question.

On the first chart, iStock sees to potential landing spots, for the near-term anyway. First up, the index is trading on the trend line connecting the past year's pivot-bottom. Only once in the last 52-weeks has the index violated the key line of support, but barely.

If the blue line holds, then the NASDAQ should move into recovery mode soon, like now. If current support fades, it would be an unwelcome development in our view. It could mean that we've seen the top of the energizer bunny rally. It might even be the top for a long-time to come.

[Related -PowerShares QQQ (QQQ): Is the NASDAQ About to Go Cliff Diving? A 3T Review]

The next stop for the NASDAQ likely would be psychological as well as completing a triangle pattern at 4,000.  We don't even want to talk about what happens if the NASDAQ goes sub 4,000 by 1-2% - many will be jumping in-line calling for the start of a bear market or recession. You heard it here first.

Chart #2 confirms our view that the NASDAQ should be ready to rebound as the index is trading more than three standard deviations below its normal, 20-day trading range. A mayfly has a longer life span than a stock, index, ETF… that is so far outside its typical trading box.

However, we do have a serious concern as the NASDAQ broke down following a narrowing of the range between highs and lows. Based on our experience, there is more to come in the direction of escape, unfortunately down this time.

[Related -Fed Minutes: Not If, But When On Tapering]

Finally, the third T adds another layer of things should get better soon as the rate-of-change (ROC) has fallen to or flirting with 52-week lows, which have marked short-term bottoms.  

According to what we see on chart #3, some short-term downside remains, doubtful too many eager buyers will be around to end the week, but moods may improve during the weekend.

Overall: We wouldn't be surprised to see the NASDAQ bounce back in the short-term, maybe as high as 4,250, but the vertical escape from a narrowing trading channel raises the odds that we haven't seen the bottom yet. Let's hope the lower trend line is the worst of it.