What to expect next in DJIA

 Bullish wave count of wave 4 gets canceled as proposed wave 4 overlapped wave 1. Moreover the move from recent highs has an impulsive form. DJI has stepped out of the long term channel in the daily chart. First try was made to reenter but was not successfull. I don't think that new lows are on the way just yet.

Taking a closer look at the 30m chart, DJI has found resistance at the 38% retracement. Futures spiked yesterday during premarket in response to the rate cut in China, but as I mentioned in twitter we should have thought twice before labeling this as 'good' news. Most probably the market is now in correction status. I think until the end of June the market will not crash to new lows, instead it will form a corrective A-B-C towards 50% and 61,8% retracement. Currently we are at the start of this potential upward correction. A pullback was expected from yesterday to begin as the rise was too steep and too fast. 

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Upward correction or new highs?

 The 5 wave down move is clear amongst major indices. The most possible scenario is that it is followed by a 3 wave upward correction. S&P daily chart shows clear impulsive move downwards with potential retracement target at the 61,8% level (1365). The decline took near 2 months to unfold. So the correction could be expected to end near end of July.

  DAX along with the other major european indices has also made 5 waves down with an extension in wave 1. Wave 3 was not the largest wave but also not the smallest. So our count remains valid under EW rules. DAX has 6150 as resistance and 5950 lows as support. 6600 is textbook retracement target

CAC found support at the middle pitchfork and finished 5 waves down from March top and has the same wave form as DAX. 3350 level is the 61,8% retracement target for potential wave II.

Eurostoxx bounced at the middle pitchfork again and as well ended 5 waves down with the 3rd wave not being the smallest. So again we expect a countertrend rally to push the index the next month or two towards 2300.

It is important to note that the basis of the wave count is that the markets have changed trend and are moving impulsively downwards. Normally second waves should be avoided in trading as they are corrective and can take many forms. However entering long positions near the lows in any given pullback could prove a wise choice if the markets made an important bottom on Monday. With such a big bounce from Monday lows, it is essential that S&P won't break the lows at 1270 area. In the case that our basic wave count is wrong and we just started a new upward move to new highs, the long positions will compensate for wrong wave labeling.

Has EURUSD bottomed? temporarily?

 EURUSD has found suport at the middle pitchfork as expected but at a lower level than 1,2350 that we first mentioned as target. It finally has shown power to the upside to counter the large decline that has taken place in May. The form in the daily chart looks impulsive with a downward bias and any significant bounce will most probably find resistance at 1,26 and at 1,275 upper pitchfork. Bulls could take risk with a stop at the lows with a target at first resistance (1,26-1,2650). Bears should be ready to pull the trigger again.

Short term chart shows that if EURUSD breaks support now we could retest 1,2425. Resistance at 1,2545 is the first obstacle to reach 1,26 target for end of correction.

AAPL with a bullish view

 Once again we revisit AAPL as it is a very popular stock among blog visitors and was requested several times to post an update. The move from the April highs is overlapping and no viable impulsive wave formation can be seen. Moreover the wave relationship between wave A and C is close to textbook examples. Our initial target around 530$ was achieved as mentioned in previous posts. The low at 522$ was followed by a 5 wave impulsive upward move as shown in the next chart.

 My count for the presence of an irregular B wave supports the bullish sentiment behind this stock along with the potential power to resume upward trend soon. Till now the stock has retraced 50% of the impulse from 522$ to 576$.

At the 50% retracement near 548$, the stock moved again upwards with a smaller degree 5 wave towards 567$. Although this move is not my favorite clear 5 wave formation, we can still count it as one. The stock has paused the decline between the 38.2% and 50% retracement in the area of the previous 4th wave. The correction is in 3 waves from 567$ top and could very well be over. Short term stops could be place at 548$. The low of 522$ could be another option for a stop level. Resistance at 565$ should be broken for short term upward move to continue. On a daily basis I don't want the stock below 520$ as the road to 450$ would be open.

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Bears have the upper hand now.

 Friday's session changed very important elements in wave counts for S&P. Breaking the low of 1291 canceled the possibility of being in a 3 wave decline from 1422. It also overlapped potential wave 1 top of October 2011. The move from 1422 March top is almost a perfect  textbook 5 wave. What we need now is for the 5th wave to be completed in 5 waves of lower degree. My target for the end of this 2 month move is 1250 area. 

Pitchfork support and wave relationship (wave 5= wave 1 and 3 *61,8) give me 1250 as most probable target. 1270 is the next most possible bottom and least possible is the area above 1200-10. Selling this decline is too risky if you take under consideration that we are in the final stages of this wave. The implications of such a decline and the fact that it cancels so many bullish scenarios is quite frightening.

 Long term support lies at the area of 1250 where the middle pitcfork also lies. Of course 1100 and 1000 levels if broken, 2008 bear market will be relived in greater magnitude. Lets hope we will not reach those levels.

 

Moving closer and zooming in the 5th wave of S&P we observe that we are in 3rd wave down. This 3rd wave might not be over yet, but if it is, a consolidating 4th wave below 1295 could give a short term bounce. 

The fact that the 1st wave of the 5th is extended, might mean that the 5th wave could be short lived. The 3rd wave of the 5th is already larger than wave 1 and wave 5 can take any size(wave 3 is not the smallest). That is another reason why I prefer to be patient when considering a  new short position. Wave 2 may follow and as we know, it will have to take as much time as wave 1 and may fool lots of people that the uptrend is back at play. This doesn't mean we shouldn't try and profit from such a scenario. Wave 2 could rise even up to 1350-60.

All the above are based on the assumption that 1422 is wave 2 of C top, and the 3rd wave of C started. Targets are below March 2009 low. The form and the time the market moves will give rise to bullish scenarios also that we will have to take under consideration. At this time however, bears have the upper hand.