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

Here is a look at the most recent price action since the May 1 high in the Dow Jones Industrial Average YM futures contract.  As you can see, the initial downward wave from the May 1 high was a “3”.  I don’t see a way to count it as a 5 that holds up to intense scrutiny.  This is a critical clue, because in a correction, only triangles and flats begin with threes.  Also, since the Primary (burgundy) wave 2 that occured in August of last year was a zigzag, we would expect wave 4 burgundy to be either a flat or triangle anyway in order to fulfill the guideline of alternation.  Since the May 1 high then, I am counting the initial down wave as a zigzag, and have labeled it wave A black. After that, I believe we’re getting an expanded flat for wave B black, and within that, we’ve seen a zigzag for wave A blue, and a zigzag for wave B blue, and are now inside what I believe will play out as an upward impulse for wave C blue. Inside the wave C blue so far, I’m counting waves 1 and 2 pink as complete, or very,very near complete. Invalidation is at 12,350.

Any possibility of a triangle here has, in my opinion, been eliminated because wave A black, a 3-wave structure, which ended at 12,521, was subsequently bettered to the downside by the wave that ended at 12,379.

For all of the above reasons, which are undoubtedly easier to understand on the video, I’m looking for a fairly aggressive rally to either kick off the start of the trading week, or only after a very small amount of lower movement. The minimum upper target for wave B black of a flat would be 12,832, and with an upper target of 13,028 (B=A*1.382), or possibly even a bit higher.  As a reminder, if the market opens the week moving lower, invalidation of this count is at 12,350.

I think the best alternate count is that the top is in, and we’re in a leading diagonal to start the new bear market, starting from the May 1 high.  Even if this is the case, I’m expecting price to move upwards early in the week, above 12,616, but not above 12,740. This is because of the 5 non-overlapping green waves up from the May 17 low, which, in this alternate scenario, can only be wave A of a zigzag for a wave 4. This would be followed by a new low below 12,350 in 3 waves, to complete the leading diagonal.  I do not find this scenario particularly compelling at this juncture, because the larger trend is unmistakably up, but it is possible, especially if the Dollar continues to strengthen to open the trading week.  

Another alternate is that from the March 16 low of 11,556, we’ve seen a bullish 1-2-1-2 to kick off primary (burgundy) wave 5. I don’t think this scenario is very likely either, because that would mean that wave 3 burgundy ended on February 18 at 12,391, and therefore wave 4 burgundy on March 16 at 11,556, and as I show in the video I’ll be posting here in a minute, there is a major fibonacci relationship between waves 1 and 3 burgundy as I currently have them labeled in the main wave count. Look for the video post shortly . .

Hope to see you in one of my weekend webinars real soon.  There are plenty of seats left for both tomorrow.  Thanks,

Sid – http://elliottwavepre.wpengine.com