DOW update: is it all downhill from here or? what to expect over the next few days/weeks.

Today at the open the indices gaped below the support levels I outlined in my recent DOW-weekend update… 😦 That’s an easy way to take a hurdle… 😦 However, the DOW was able to close at my projected levels, despite today’s carnage and we continue to sport the Primary IV count on the indices. Trust me, nobody expected today. Because, remember, not until 3:58pm on Thursday was the important SPX 2040 low broken (9pm that evening on the ES-futures…). Hence, we’re only 2 days deep and most have thrown in the towel already, but keep the longer term in mind, as the market does not work in a mere few hours. It only functions if it in general -long term- goes up. The market has no function if it only goes down. It’s against the laws of nature. So do we get the 2nd buying opportunity of a life time!? Call me crazy, but we may very well get it. Con’t below chart (CLICK CHART TO ENLARGE)

Figure 1. DOW weekly chart. Price hit 38.2% retrace, red trendline, and reversed, but 50% retrace could still be on tap.

dow wave count

Figure 1 shows the DOW count since the October 2011 low, with the most relevant trend lines and Fibonacci retracement levels (in white). Since the DOW clearly broke below the lower yellow trend line, as well as the blue trend line (in place since the 2009 low) we need to look at the next trend line below (there always is one). In this case it’s the purple trend line. I showed it in the weekend update, but I’ve adjusted it slightly lower since I now have the upper purple trend line actually going through Primary III from I, and not through intermediate a and c of III. This way the same degree waves are connected. We can observe that price pierced through this lower purple trend line, but closed above it. Moreover, there’s also a 2nd trend line (the red one), which connect the Primary I high with the major 1 and intermediate i of major 3 highs. Price tagged that one exactly and reversed.

In addition, there are 8 more observable facts to this chart, as well as others, which favor a low is in place:

  • Price hit the 38.2% retrace of all of Primary III (measured from II), which is very common for a 4th
  • Price hit the 76.4% extension of Primary I, from II and closed above it
  • Price found support in the lower S/R zone (the 2nd zone below the 16,500-16,250 area I pointed out in my weekend update, but which the market opened below on Monday) and closed above it.
  • Price (almost) tagged the 200w SMA and reversed (not shown here). This has only happened twice over the past 20 yrs, and is as such very significant.
  • Price closed above the monthly lower BB level (15,827) outlined in the weekend update as possible resistance.
  • Time-wise major c equals major-a at 33 trading days, which is very close to the Fibonacci number 34
  • Price traded entirely outside the weekly lower Bollinger Band today. This only happened once over the past 20yrs: during Primary II. Price continued back inside the lower BB, made a marginal lower low eventually and then rallied for Primary III.
  • Major c extended almost 323.6% times the length of major a. These types of extensions are IMPOSSIBLE to predict before hand. However, please do note that IF the market decides to make a lower low the 361.8% extension at $15,000 to the 50% retrace at $14,725 is the most likely target zone.

However, based on where the TIs, market breadth, and VIX are now from an hourly to monthly time frame compared to their respective levels seen over the past 20 years I expect a bigger bounce at the very least first.

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