I’ve been meaning to post my long term history and outlook for the Dow Jones Industrial Average (DJIA) using a semi-log chart, but my platform has, until recently, had a difficult time keeping the chart sized correctly in semi-log mode. I actually got it to fill up the screen nicely and stay that way this morning, so here is the screen shot for posterity. Unfortunately, I can’t set the MACD for semi-log when looking at this much data. Still, the huge divergence between the 2000 and 2007 highs strongly suggests that the 2000 high in the Dow was the Grand Supercycle wave 3 top, and was therefore followed by a 3-3-5 expanded flat through March 2009. All the sub-divisions of each wave fit that interpretation perfectly. Also, look at how the price action since early 2000 is a larger fractal of the first ten years of the combination corrective structure that occurred in the Dow from 1966 through 1982.

If you’ve been following my work, you know that I think the expanded flat (ending March 2009) completed a Supercycle wave W, which I predict will be just the start of a multi-decades long, sideways Grand Supercycle Wave 4 combination correction. I’m therefore counting the rally since March 2009 as a zigzag X-wave, which may be complete, but I’m still barely holding on to an expectation for one more upward wave-5 push to complete the Cycle wave C (teal) of the zigzag. Upon completion of the X wave, I’m expecting a bear market in 3 large waves, to complete a Grand Supercycle wave Y. W-X-Y combinations are not required to adhere to standard Elliott corrective pattern rules (zigzag, flat, or triangle). In other words, the WXY doesn’t need to follow the same rules as any of the known ABC structures. More simply put, wave Y does not need to make a new low below the March 09 Wave W low, although for the right “look”, it will need to come relatively close. As a Y wave, it will need to be a “three”.

As for the US stock market this morning (June 6, 2011), the 2-hr MACD is showing divergence (but not on the 3-hr yet), and my wave count expects a rally, which may be getting underway this morning, although the kick-off is pretty choppy.

On the other hand, my Elliott Wave count on the Euro, after completing what appears to be a 5 wave impulse, with the 5th wave showing MACD divergence on a 3-hour chart (as signalled in my last post), we’ve seen an aggressive selling burst, which may be the start of the long awaited wave 3 down.  Or, it may be a correction within a larger bullish move that started May 23rd. The shorter-term internal wave structure of the Dow and Euro starting this morning will be of paramount importance to predict what’s next.

While the stock market and the Euro have been more-correlated-than-not for quite some time, they appear to be attempting to part ways. The dog fight that is ensuing will almost certainly be accompanied by a high degree of short term volatility. Hence the 175 pip drop in the Euro in less than an hour, while the Dow futures continued to grind higher (up 75 points so far).

Don’t forget about my weekend webinars. Hope you can join me in one soon!  

Sid . . http://elliottwavepre.wpengine.com