Elliott Wave Analysis of the Dow Jones Transportation Average (DJTA) by Sid from ElliottWavePredictions.com. Click on the chart twice to enlarge.

Of the major U.S. equity indices, the Dow Jones Transportation Average has been producing some of the cleanest non-ambiguous Elliott Wave patterns over the past few months, and the implications of the wave structures support my expectation that another substantial downward leg is about to commence in U.S. equities across the board. Here are the clues that the Transportion Average has presented:

1) As you can see on the 240 minute chart, the move down from the July 7 all-time high through August 23 was a crystal clear non-overlapping 5-wave impulse. As per the wave principle, because that 5-wave impulse didn’t even come close to retracing at least a very substantial portion of the previous wave up (from the March 2009 low), and because the impulse down from July 7 commenced from an all-time high, the downward movement from the July 2011 high is incomplete, and can only be wave A of a downward zigzag (which subdivides 5-3-5 . . . the final 5 still to come ), or wave 1 of a downward 1-2-3-4-5 impulse (with waves 1 and 2 being virtually complete, and 3,4& 5 still to come).

2) Since August 23, the waves have been choppy and overlapping, supporting my corrective count  in the Transports of a W-X-Y-X-Z triple combination, which is within an eyelash of completion in my opinion. It is important to note that when a triple combination completes, it has effectively run out of letters . . (there is nothing after Z . . the correction is over . . it can extend no further).

3) Price in the Transports is nearing a confluence of resistance at the 5292 level:

  • the .764 retracement of the May-Aug downward impulse
  • where wave C blue will equal the length wave A blue was
  • where the extended wave 5 pink will equal the net traveled by waves 1 though 3 pink.

Based on the above evidence, after one more slight push to the upside, I’m expecting that a substantial downward trend will commence in the Transports, and if its going to happen in the Transports, its overwhelmingly likely to occur across the board in all US equity indices.

Sid
http://elliottwavepre.wpengine.com

P.S. I’ve noticed that a number of wave counters are trying to label the movement down from August 31 through October 4 as an ending diagonal, but any such interpretation would be incorrect in virtually all indices, because the theoretical wave 3 within the diagonal was longer than wave 1 (suggesting that an expanding ending diagonal was unfolding), followed by a theoretical wave 4 that was shorter than wave 2 was (suggesting a contracting ending diagonal). A diagonal cannot be both expanding and contracting at the same time, so the labeling of any sort of diagonal from Aug 31 thru Oct 4 would be invalid, according the rules of the wave principle.  One can therefore reasonably conclude that all of the price movement since August 23 is corrective.