The
Dow Jones Industrials Average is heavy, currently trading just above the Nov low at 7449. With the downside pattern not “complete”, a
break to new lows (and levels not seen over 6 years) is favored ahead. Currently, the market is within wave 3 in the fall from the Jan 28th high at 8406 (see numbering on daily chart below), while the nearer term downside pattern from the Feb 9th high at 8315 (wave 3) also does not appear “complete” (see shorter term chart at www.fxa.com/solin/comments.htm ), and adds weight to the view of at least some further downside ahead. However, other major indices are still fairly distant from their Autumn lows and could lead to new lows in the Djia not being confirmed by others (bullish divergence). Also the financial etf (XLF and a favorite indicator) has reached a new low but into important support (see 2nd chart below), with both suggesting that new lows in the Djia may be limited and part of a longer term bottoming (vs the start of a major new downleg). Currently, given the scope for at least some further downside, want to be short and would sell here (cur at 7555). But given the potential that new lows (if they do indeed occur) may be limited, use an aggressive stop on a close above the week long bear t-line (currently at 7775/25), to keep risk at a minimum. Support below the Nov low at 7449 is at the base of the bear channel from early Nov (cur at 7225) and the base of the bear channel from Oct (cur at 6650).
Longer term view of an extended period of wide ranging remains in place as the market consolidates the 5 wave fall from the Oct 2007 high at 14198. Even a break below the Nov 2008 low at 7449 would not change the bigger picture view of more wide ranging, suggesting that the downside would be limited, and would be seen as part of a large irregular type consolidation (wave B). Note too that this would also suggest another upleg back to the Nov high at 9654 and even slightly above after (within wave C, see “ideal” scenario on weekly chart/3rd chart below). Bottom line, would be looking for signs of a bigger picture bottom on new lows to buy (not to sell) as the bounce from those lows (when it does occur) is likely to be substantial (25% or more).
