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Dow Jones forecast: Bears eye 43,047–47,437 as August warning confirms breakdown

On August 6, we flagged a rare Dow Jones setup: two consecutive daily sessions with both the open and close entirely above the upper 20-day, 2-standard-deviation Bollinger Band, capped by an August 5 shooting star. Momentum was stretched (RSI-5 near 81, full stochastic near 92), and the NYSE McClellan Oscillator was neutral rather than the deep oversold readings that have historically marked lasting bottoms.

The conclusion was cautious but measured: the primary trend remained higher, yet the combination pointed to a vulnerable rally and a likely pause or pullback toward the middle Bollinger Band. That pullback has now materialized — and then some.

What happened after the signal

Price immediately slipped back into the upper band and never convincingly reclaimed the August extreme. As of September 9, the Dow was last near 52,450, with the short-term RSI washed out, price at the lower Bollinger band (which is expanding), and the index below its 10-day, 20-day, and 50-day Simple Moving Average (d SMA). Meanwhile, the MACD has been pointing lower and has been in a sell signal since August 17. See Figure 1 below.

Figure 1: Dow Jones Daily chart with our short-term Elliott wave count and several technical indicators.

The original study’s completed historical analogs showed only mild average weakness over the following 1- to 20-day windows. This time, the decline has extended beyond that short-term window and has broken a cluster of nearby supports: the 50d SMA and the dotted gray uptrend line in place since May. That raises the odds that the August high was more than a routine pause.

The bigger picture: Why the pullback can run further

The monthly chart helps explain why the damage has exceeded the original short-term template. See Figure 2 below.

Figure 2: Dow Jones monthly chart with our long-term Elliott wave count and several technical indicators.

The advance from the 2020 COVID low counts as a larger ending diagonal (ED). In EDs, the third wave (W-3) ideally targets the 123.6-138.2% extension of the 1st wave (W-1), measured from the 2nd wave (W-2) low. That happened in August, right at the upper end of the ideal Fibonacci target zone: 54,744 vs. 54821. In that framework, a larger fourth wave is most likely underway—similar in degree to the 2022 decline, which was a second wave of the same structure.

The ideal support zone for that fourth wave lies near 43,047–47,437. That does not mean the Dow must reach that level immediately or in a straight line. Quite the contrary; see the anticipated green and red dotted path in Figure 1. However, it does mean yesterday’s break below critical support warns of a multi-month correction rather than a one- to three-week dip. A fifth wave higher would come later, only after that fourth-wave correction is complete.

What matters from here

The original August article said confirmation would come from a break below the shooting-star low or a drift back toward the middle Bollinger Band. Both occurred. The new question is whether this is still a mid-trend shakeout or the early stage of the larger fourth wave.

Watch three things:

  1. The broken daily warning cluster (roughly 53,300–750). A sustained reclaim would argue that the August high was only a sharp but contained shakeout.
  2. Failure to rally through that zone would keep the larger fourth-wave path toward 43,047–47,437 in play.
  3. The monthly bull-warning levels and the rising channel. If the index remains below the August target box and inside a developing fourth-wave structure, rallies are suspect until proven otherwise.

Bottom line

The rare August Bollinger Band/shooting star warning was not a false alarm. The Dow stalled, mean-reverted, and then broke through the nearby support levels that defined the “mild pullback” case.

The daily chart shows the short-term warning worked. The monthly chart explains why the correction may not be finished: the index topped at the ideal third-wave target of the ending diagonal that began at the 2020 low. Until the Dow reclaims the broken daily warning zone, the burden of proof remains with the bulls — and the 43,047–47,437 area is the logical magnet if this is the larger fourth wave.

Author

Dr. Arnout Ter Schure

Dr. Arnout Ter Schure

Intelligent Investing, LLC

After having worked for over ten years within the field of energy and the environment, Dr.

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