Elliott Wave Analysis of the Dow Jones Industrial Average (DJIA) by Sid from ElliottWavePredictions.com

Elliott Wave Analysis of the Dow Jones Industrial Average (DJIA) by Sid from ElliottWavePredictions.com.  Click on the charts to enlarge.

From 1966 through 1974, the Dow Jones Industrial Average carved out a cycle-degree fourth wave expanding triangle (shown on the quarterly chart below).  In expanding triangles, each lettered wave makes a new extreme. Wave B ends beyond the start of the triangle, wave C ends beyond the extreme of wave A, wave D makes a new extreme beyond wave B, and finally, wave E ends beyond C.  Each leg of the triangle must therefore be more aggressive than the last.  When the wave E (burgundy/primary degree) occurred from 1973 through 1974, the DJIA lost 46.59%, from peak to trough.  That triangle lasted eight years.

DJIA quarterly 6-19-15

My main wave count is that the DJIA has been in that same expanding triangle pattern (fractal) since the year 2000.  But this fourth wave triangle is at supercycle degree, one degree larger than the cycle degree triangle back in the 70’s.  We are 15 years into the pattern now, and wave E has yet to commence.

On the monthly chart (below), I’m showing my main count only for the Dow Jones Industrial Average since the mid-90’s.  Four of the five legs of a triangle must be an ABC zigzag.  One leg of the triangle gets to be something else, like a double zigzag or five wave impulse or diagonal.  The wave A (teal/cycle degree) of the triangle (starting in January 2000) was quite rough, and I believe counts best as an ABC zigzag, where waves A and C within it were contracting diagonals.  I believe that the following leg from October 2002 through October 2007 counts best as a double zigzag.  That leg is therefore the one wave of the triangle that gets to be something other that a standard ABC zigzag.  Downward movement from the October 2007 through March 2009 counts nicely as an ABC zigzag, with wave C of the pattern being quite destructive.

That brings us to wave D of the triangle, underway since March 2009.  Since the 2002-2007 bull was a double zigzag, the rise from 2009 must be standard single zigzag, and so far, that’s exactly what it appears to be.  Zigzags generally move entirely within a “base channel”, as shown on the monthly chart in burgundy.  As you can see, since early 2014, on a semi-log chart, price has been unable to stay within that base channel, but has continued to grind a bit higher in recent months anyway.  Very importantly, the Dow appears to be rolling over now though, in association with reaching a major Fibonacci price target of 18,151.63, where wave C (burgundy) of the zigzag reached 1.618 times the length of wave A.  Since reaching that target in February, the DJIA has not been able to close above it on a monthly basis.  Also worth noting is that Wave C’s of zigzags are rarely longer than 1.618 times wave A.

DJIA monthly 6-19-15

On the weekly chart below, I’m showing both the main count, as described so far in this post, and an alternate, which expects that supercycle wave 4 lasted only nine years and ended in 2009.  If that alternate is correct, we will see a 5-wave impulse up from the March 2009 low, with waves 1, 2 and 3 of that impulse pretty much finished.  As you can see, in both the main and alternate counts, a significant correction is likely to commence soon, and that correction is likely to move down into the next 4.5-year cycle trough, currently due in March 2016.  If that downward movement into the March 2016 4.5-year cycle trough is a five-wave affair, the main count is likely correct.  If it is a three-wave something, or is impossible to count as a legitimate five-wave impulse or diagonal, the alternate count would be more likely.

DJIA weekly 6-19-15

Moving on to the daily chart below, it is interesting to note that the Dow Jones Industrial Average has, since October 9, 2013, spent only 18 trading days (Sept 19 – Oct 15, 2014) outside the confines of minor (blue) or intermediate (black)-degree ending contracting diagonal!!  Price action inside contracting diagonals is overlapping and sloppy, but still trending, albeit quite gradually. Once diagonals are finished, they are typically deeply and quickly retraced.

I think the most important aspects to note from the daily chart are

  1. The downward movement from May 19 through June 15 2014 is choppy, overlapping, and corrective, and cannot be counted as a five-wave anything.
  2. The large 40-week cycle trough is still in front of us, centered now in late July.
  3. The last cycle crest expected before downward movement into the coming 40-week cycle trough is centered on June 23, although we may have already seen the top tick associated with that 40-day cycle crest.
  4. If downward price action into the July 40-week cycle trough moves below 17,285.90, we’ve likely already seen the teal (cycle degree) wave D top within the multi-decade expanding triangle described earlier.  That’s because wave four of a contracting ending diagonal cannot be longer than wave two was.  However, that seems unlikely to occur, because of the choppy overlapping movement down from the May 19 high so far.
  5. Once price is finished moving down into about late July, there is a last coordinated nest of large cycle crests still due in September/October.  Many of the stock indices I track are expecting a similar roadmap, although some, like the Industrials and Financials appear to need a final high in Sept-Oct, whereas others, like the Russell 2000 appear to be putting in their final large-degree pattern tops here in June, and are unlikely to make new highs later in the year.
  6. Once the September/October crests are “in”, there should be a strong bearish blast down into the March 2016 4.5-year cycle trough. The internal wave structure of that move will be quite important, as described earlier.

DJIA daily 6-19-15

Finally, as the 240-minute chart shows (below), a legitimate 5-wave down structure from the May 19 high simply did not occur.  While yesterdays high may have been the top of pink wave X, and price has already started into the downward movement associated with the July 40-week cycle trough, we may see a slight bit more upward movement on Monday/Tuesday to 18,244 (where green C will equal green A times 1.382) before 3-4 weeks of downward movement ensues.

DJIA 240m 6-19-15

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Sid Norris