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Dow Jones Indus, potential for sharply lower prices ahead....

Wed, Sep 17 2008, 05:43 GMT
by David Solin

FXA

The Dow Jones Industrial Average finally broke below the July 15th low at 10828, but right into longer term support at 10700/50 (50% retracement from the Oct 2002 low at 7197), and before bouncing. However, the downside pattern from the Aug 11th high at 11867 appears to be far from “complete” (currently only within wave iii in fall from the Sept high at 11598, see numbering on daily chart below) and suggests significant, further downside needed ahead (at least “time-wise”). Also, the series of “subwaves” (III, 1-2, i-ii) suggest that a further downside acceleration may be ahead (3rd waves tend to be the most “explosive” part of a cycle). For those familiar with Elliott Wave Analysis, the market appears to be within wave iii in the fall from Sept 9th, within wave 3 from the early Sept high, and within wave III from the Aug 11th high at 11867. The bottom line at least another few weeks (and likely months) of sharply lower prices is favored ahead and would sell here (currently at 11050) for new lows. Initially use a wide stop on a close above the bearish trendline from late Sept (currently at 11385) as there is some chance for a sharp, but short-lived bout of short covering first (but not currently favored). Resistance before there is seen at the recently broken bullish trendline from July (currently at 11100).

Longer term, the market continues lower since the Oct 2007 high at 14198 completed the whole rally from at least the Oct 2007 low (wave 5, see numbering on weekly chart/2nd chart below). Only appear to be about ½ through with this period of correcting (at least time-wise), and suggesting at least another year or so of net lower prices ahead.
However, the depth of this decline remains in question. Could see another few months of ranging lower (cycles bottom in Dec), followed by 3-6 months of correcting higher, and then a final push to new lows into next year (extended period of wide downward ranging), or could see further sharp declines from here, with little in the way of significant bounces over the next year. In either case, further downside is favored for the next year or so and want to be short. Longer term support is seen at 10700/50 (50% retracement from the Oct 2002 low at 7197), the falling support line since Jan (currently at 10500) and 9900.

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Published on  Wed, Sep 17 2008, 05:49 GMT