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

Upon further scrutiny, the leading diagonal count that looks so perfect on the YM futures contract doesn’t hold up on the index itself, because wave 3 would be longer than wave one, while wave 4 would be shorter than wave 2. A diagonal can hardly be contracting and expanded at the same time. Reminder to self: the count on the index takes precedent over the count on the contract.

My main Elliott Wave count is therefore shown above, which interprets the price action since May 1 as corrective, and continues to expect eventual new highs in the stock market, but only after what could be a considerable Primary degree (burgundy) Wave 4 correction. Invalidation of this count is all the way down at 10,720.

One subscriber emailed that the divergence showing on the weekly chart shows that the top is “in”, and the bear is underway. While there is a very slight divergence showing on the MACD between the points labeled wave 3 black and wave 3 burgundy on my chart, there are several reasons why I’ve chosen to keep the wave 3 burgundy label at the May 1 high. They are:

  • It is quite common for the MACD to peak at the wave 3 of 3 top
  • In order to fulfill the guideline of alternation, I think a Primary (burgundy) degree wave 4 will need more time to complete than 4 trading weeks (2-18 thru 3-16).
  • Waves 1 and 3 burgundy, where I currently have those labels placed, have a 2.618 Fibonacci relationship, which is very common.
  • If the top is in, intermediate (black) wave 4 (within wave 3 burgundy) would have lasted only 2 days! (from 1-26 thru 1-28). This is so short, that it is un-detectable on a weekly chart.
  • On weekly and daily charts, there are 7 discernible waves so far from the Teal Wave B low on July 2, 2010. That is corrective. We need one more high to complete 9 waves (1-2-1-2-3-4-3-4-5).
  • Sentiment is near neutral, which is not supporting a major top.
  • The divergence seen so far was very slight. I stated all the way back in February that we would likely need to see two divergences toward the end of wave C to indicate that the top was in. Look at the divergence at the end of wave A teal. I would have a lot more confidence that wave C teal was complete after that type of more pronounced divergence.  Price can continue to climb while the MACD continues to diverge . . .  a phenomenon we’ve become all too familiar with on shorter term charts for months now.
  • The first logical Fibonacci extension of wave A teal has not been achieved yet (1.382 @ 13,087).

Sid
ElliottWavePredictions.com