Technicals
Downside Risks Remain For Dow As it Targets Trendline Support
Friday, 30 Oct 2009 9:38 EDT at 9:38 by John Rivera · Leave a Comment
As is often the case in Elliott, the picture is becoming much clearer as the rally has matured and nears its end. The advance from the March low is a complex W-X-Y (a-b-c-x-a-b-c) rally. The Dow has actually satisfied minimum expectations for the rally by exceeding 9918 (wave iii of c) so a reversal could occur at any time. Wave c of y would equal 61.8% of wave a of y at 9947. Momentum is as one would expect at an important top with RSI failing to confirm the new price high.
The Dow found support yesterday but unless we see a break back above 10,000 we continue to favor a test of trendline support near 9,650. A move back above the psychological level would lesson our conviction for the bearish bias with a break above the yearly high of 10,119 making the case for a bullish outlook.
The S&P is in the exact same position as the Dow. The analysis presented there applies here.
The S&P 500 bounced from trendline support at 1,042 which could lead the broader index to look to test 1,120-50.0% Fibo of 1,576-666. However, with downside potential remaining for the Dow, we could see the S&P 500 bounce along the trendline until the next catalyst. A break below exposes 978-8/17 low.
The NASDAQ pattern is the same as the Dow and S&P patterns with one exception – this index has yet to exceed its September high. It’s interesting that the NASDAQ is the weaker of the 3 indexes at this point since it is the one that has led the advance since March, retracing a larger percentage of its 2007-2009 decline. It is possible that the divergence (new highs in Dow and S&P, not in NASDAQ) sets up a non-confirmation that results in a turn lower. In Elliott terms, failure to exceed iii of c would constitute a truncation.
The NASDAQ found support after breaking below trend line support at former resistance at 2,063 the 50.0% Fibo of 2,861-1,265. A break below the level would expose 1,929 the 8/17 low. A test of 2,250- 61.8% Fibo of 2,861-1,265 may follow if support holds.
