No change in the view on the Dow Jones Industrial average as trade from the Oct 10th low at 7883 is seen as a correction (wave 4 in the fall from the May high at 13137) and with eventual declines below the 7883 low after (within wave 5). Currently, the market appears to be forming a contracting triangle/pennant (as a number of financial markets are). These are generally seen as “continuation” patterns that resolve sharply, and adds weight to the view of eventual new lows. Nearer term however, there is scope for more ranging within the pattern before resolving downward (see “ideal” scenario in red on daily chart below). For now for the shorter term, would fade the extremes of the pattern (buying an approach of the base, currently at 8250/00 and shorting an approach of the ceiling, currently at 9650/00) but with the expectation of an eventual downside resolution of the triangle/pennant.
Longer term, the bearish bias over the last year (warned last Oct of at least 12-18 months of correcting lower) remains in place but the market is nearing a potentially major bottom (for at least 3-6 months and minimum 25-30% bounce). Currently, the market is within the final downleg (wave 5) in the whole fall from the Oct 2007 high at 14198. However, this final downleg (which began at the May high at 13137) is still not “complete” (see shorter term above) and suggests a final push below the Oct 10th low at 7883 (also a 50% retracement from the post 1987 crash at 1616) to complete a potentially important bottom (see “ideal” scenario in red on weekly chart/2nd chart below). So for now, would maintain the long held, longer term bearish view but will be looking for signs of a significant bottom on another downleg to new lows (and looking for an opportunity to reverse to the long side for the bigger picture).
