Extensive Analysis of the Dow Jones Industrial Average & Predictions

The 3-day chart of the Dow Jones Industrial Average, below, is selected to illustrate as many facets of the current wave count as possible. Overall, the picture presents a contracting diagonal wave down, and a 'deep retrace' of the diagonal which is greater than 78.6% by measurement. It was also selected because - if studied carefully - it can also illustrate many features of 'degree labeling', as well. This is not a new count. It was shown previously on the ES futures (post at this LINK) back on 24 June. If you read the details, below I think you will see how this chart comes together is truly fascinating.

DJIA Cash Index - 3 Day - Current Count

Overall

Wave Intermediate (1) / (A) down is selected as a 'contracting diagonal' because it follows the rules. Wave Minor 5 is shorter than 3, which is shorter than 1. Wave 4 is shorter than 2 and overlaps wave 1. Wave 2 is a 62% retrace of wave 1 which also follows the guidelines. Many wave analysts have selected the expanding form of the diagonal, from the high, but this breaks the rules, so I won't do it. Wave 5 is too short in that attempt at an expanding diagonal count. Further, note the MACD diverges at the low which is the exact opposite of what to expect from an expanding diagonal wave.

In the downward wave count shown above the only questionable item is that wave 4 is very short in length. That is true, but it does not break any rules. It only runs afoul of a guideline. Still note how well this wave 4 fits up to a declining down trend line to preserve the right look of a contracting pattern.

Initially, I was also thinking there might be an expanding diagonal down, and I can see why I and others thought so too. That is because the very beginning wave, Minute wave a, is an expanding leading diagonal down in itself!

Degree Labeling Details

Overall Intermediate (1)/(A) and (2)/B) are about the same length in price. So, they should be of the same degree (or else (1)/(A) is of one higher degree). Further, we already know that Intermediate (1)/(A) down is longer in price and time than the Covid downward to March 2020, if that wave was an Intermediate (C) wave, this wave down - being about the same length should be an Intermediate wave also.

Starting at the upper left, there is the expanding contracting diagonal minute a wave. Readers of this blog and interested Elliott analysts and students should confirm on the daily chart that the fifth subwave is longer than the third, which is longer than the first, and the fourth wave longer than the second and overlaps the first without traveling beyond of the second wave.

Then, there is a minute degree b wave up. This is then followed by a minute c wave down of Minor 1 (not explicitly labeled just for chart clarity).  Again, readers should verify this can be counted as five non-overlapping waves down. And wave c is larger than wave a, so the two waves should be of the same degree (or else c is of one larger degree). So, within Minor 1 are three smaller waves a,b,c which fits with degree labeling. Further, within wave Minor 1, if minute a is a Leading Diagonal, then minute c is an impulse which shows excellent alternation in a corrective-style pattern.

But the next wave up, wave 2, is larger in price than minute b which is the prior wave in the same direction. So, it should be a larger degree than minute, and it is - it is shown as Minor degree. 

Next wave Minor 3 is about the same length as - but shorter than - Minor 1, so the two waves should be of the same degree, and they are shown as that. Wave Minor 3 also contains three lower degree waves Minute a,b,c and degree labeling is preserved here, as well.

Waves 4 & 5 are unremarkable at this level of detail except for their apparent quickness to end the move and make new lows in the DOW cash and ES futures.

Then, on the wave up after the October low note that Minor wave A is longer in price than Minor wave 2 - the preceding wave in the same direction. But it is shorter than the Intermediate Wave (1)/(A), so, it should be of the same degree as Minor 2 (or else the up wave is of one higher degree). They are of the same degree. Within wave A, the first subwave up, minute i is shorter in price and time than Minor 2, the prior higher degree wave in the same direction. Thus, degree labeling fits here as well.

The Minor degree B wave down then fits with being less in price length and time than the Intermediate (1)/(A), down, which is the prior wave in the same direction, and so its degree looks appropriate, as well. 

Finally, the Minor C wave up is shorter in price than Minor A, but it is longer in time than Minor A. So, the two waves should again be of the same degree (or else C is of one higher degree). And, within Intermediate wave (2)/(B) wave, Minor A is an impulse and Minor C is potentially an ending diagonal which again would show excellent alternation within another corrective-style wave.

Critical Observations & Predictions

Overall, the diagonal and deep retrace can support a range of downward waves from equality to 1.618 to even 2.618 or more if an Intermediate (3)rd wave lower develops and the high is not exceeded first. Keep in mind these statements from The Elliott Wave Principle by Frost & Prechter, 1) Diagonals can be (1) or (A) waves; 2) When the diagonal is "retraced deeply" it is often the wave (1) form. So, wave (1) is shown first in the preference for the count.

If the high is "in", then the next item to watch for is a break the lower rising trend line shown. This line should be broken and back tested. And if the back test fails lower, it will serve as significant confirmation of the count.

Lastly, we have shown in previous posts that Minor C can be considered as an ending contracting diagonal wave. It has maintained the correct lengths up to this point in time. 

However, if it is truly an ending contracting diagonal wave, then its origin at B should be retraced fully in less time than the diagonal took to build. The MACD on this time scale does appear to be about to cross-over.

If the high holds, it would not be out of the question to get five Intermediate waves down (1) -> (5) to make the Primary ((C)) wave lower of the complex flat back to the March 2020 low or thereabouts.

Then, from the Principle of Equivalence keep in mind the alternate Intermediate (A), (B), (C) count downward would be for the alternate of a Primary ((2)) wave, down, counterpart of Primary ((1)) up to the 2021-2 high as part of a larger contracting diagonal Cycle V wave. This cannot be ruled out just yet.

The above are some very specific observations and predictions aided by degree-labeling definitions. Now let's see what the market has in mind.

Have an excellent rest of the weekend.

TraderJoe