Friday, 26 October 2012

Increased chances of an upward bounce in DJIA

Recent price weakness has pushed the index lower towards 13000. Prices have been supported at the lower pitchfork support. Prices are expected to bounce higher towards 13175-13225 resistance. Unfortunately our bullish expectations have not been met and prices fell below short term support levels and pushed the index outside the upward sloping trend channel (chart below). The market is expected to bounce from around the 13000 price level (38% retracement). 

The main bearish scenario puts the index in the start of  a large degree downward impulsive move. From 13661 high, DJIA has moved impulsively lower and according to Elliott waves it is in wave 3. Wave 3 follows all the necessary rules. It is stronger and bigger than wave 1, it consists of impulsive subwaves. For a bigger degree impulse to be complete, the 4th wave should not overlap the low of wave 1 at 13296.  If this scenario of a complete 5 wave downward move comes true, then bulls will find themselves at a very difficult position as much lower correction targets will be confirmed. 

So what now? Bulls will want the index to bounce upwards from this 38% retracement level and move past the low of wave 1. Price action will again show us  which scenario will prevail. Bears on the other hand will try to push prices lower in order for a complete 5 wave pattern from 13661 to be complete.

Thank you for taking the time to read my thoughts.

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