Short-term Bearish

The last two days drop by Dow from 8375 to 8000 confirmed that the Dow is currently in Wave 5

The last eight candle sticks formed the sub-wave (i) and (ii) of wave 5.

This line chart shows clearly the sub-wave (i)-(ii) of wave 5 consists of 3 waves. The magnitude of last two days drop confirmed the completion of (i)-(ii)

Dow is currently in sub-wave (iii) of 5 going south to break the November 2008 low of 7552. After forming (iii), there will be a rebound sub-wave (iv) follow by sub-wave (v) of 5. Hopefully the whole formation can end by middle of March 2009.

Thing may not be that bad as Baltic Dry Index (BDI) has reversed after the formation of a reversed "Head and Shoulders" reversal pattern. It closed at 1070 yesterday, a 60% improvement over its early December low of 663. This indicates that that actual physical movement of raw material has increased, economic activity has pick up, demand/consumption has improved.

CRB commodity index can remain flat due to forward selling and stock pile draw down. Very soon CRB should follow BDI in the upward movement.

The last two charts indicate that stock accumulation has started. Those with plenty of cash cannot wait until the bottom to buy, they usually buy all the way down during the last phase of decline. The OBV (On Balance Volume) has been moving inline with Dow until both have hit bottom on 20 November 08. since then OBV has moved higher despite Dow's sideway and lower movement.

Summary
1. Dow in sub-wave 5 of Major Wave A. Whole formation can be completed by mid-March 09.
2. Commodity should move higher inline with BDI.
3. Stock accumulation by big boys has started