Executive Summary
- DJIA quietly rallies last week after Monday’s collapse
- The rally has taken the structure of a corrective rally
- Two bearish models we are following that suggest a revisit of the lows.
DJIA Rally Stalls in Wave 4?
Dow Jones Industrial Average has been quietly rallying since that large sell-off last week. However, for the past couple of days, little progress has been made either to the bullish or bearish side. It’s as if DJIA bulls filled the August 5 price gap then looked up and found the bears staring at them. And now the bulls and bears are in a staring contest to see who will move first.
When using Elliott Wave Theory as our guide, the recovery for the past week has the appearance of a corrective advance. Therefore, our bias is that DJIA will see a resumption of selling in the coming days.
There are a couple of different ways to count the decline from the July 18 high. The primary Elliott wave model we are following is the decline comprising waves 1-3, and the current rally is wave 4.
Under this model, DJIA should hold below the wave 1 low of $39,814. If so, then a wave 5 decline to new lows below $38,504 are just around the corner. (black arrow)
One alternative under consideration is the decline of A-B-C. Since the rally has not materialised into a bullish motive wave, then, we can suspect that another A-B-C decline would begin in the next couple of days.
The distinguishing factor between the black and red labels is how high the current rally carries. A print above $39,814 would have us lean towards the red labels. Otherwise, we’ll keep a close eye on the black labels.
One clue that is keeping the focus towards lower levels is the Relative Strength Index’s (RSI) inability to materially push above 60 after reaching oversold levels. This behaviour suggests the bounce is a temporary bounce.
You might also be interested in:
