Looking At A Bigger Picture - Dow

George Soros: " We are at the midst of the of the worst financial crisis since the 1930s." "The current crisis is the culmination of a super-boom that has lasted for more than twenty-five years."

In his latest book, The New Paradigm For Financial Markets, George Soros writes that we are now in a financial crisis that's unparalleled. "It's the worst, most serious crisis of our lifetime."

Refer to the 1900 - 2009 chart for Dow as shown below, the "Super-Bubble" mentioned by Soros, that started 25 years ago, that was when Dow was around 1000 points. From that point Dow moved all the way to 14,164 (+1300%) by October 2007 to end its Mega Wave III (1932 to 2007).


The current crisis has been described by many as "the worst since the 1929's Great Depression". In fact, by Elliot's Wave Principles, the current bear market Mega Wave IV pull back is of the same degree as that of the 1929's great depression Mega Wave II correction. There is still a long way to go for Mega Wave IV correction. In Mega Wave II, Dow dropped from 380 in August 1929 to 41.6 by July 1932, a drop of 89% over 36 months.

The rebound from March 2009 low of 6547 to last Friday height of 8763 over a period of 3 months is really insignificant in the 1900 -2009 semi-log scale chart. To assess the March 2009 rebound we have to look at the 5-year chart below.

Mega Wave IV started in October 2007, Dow moved down from 14164 in 5 waves within 17 months to reach a low of 6547 in March 2009 for a 53% drop. I am adopting the hypothesis that the March low is the end of Major wave A. Currently Dow is forming its Major wave B that is likely to have 3 waves. Assuming Dow takes the same form as Hang Seng and Singapore STI as mentioned in my previous post, Dow will have the following wave count. Dow is likely to end its wave (I) at around 9000 provided there is no extension of wave from 5 waves to 9 waves.

However, Nasdaq's wave form is quite different from the above. It appeared to have completed its Wave (I) and (II) and it is already in its wave (III) as shown below.

If Dow is the same as Nasdaq, its wave count will take the following form. If this is true, Dow will not stop at 9000, It will punch through the 9000 level and will continue move up for its sub-wave iii.

Besides the above two possible wave counts, there is this very very bearish option which does not look likely at this moment. As shown below, major wave (III) has already been completed and both Dow and Nasdaq will have to move down all the way to March 2009 low or beyond. In stock market, sometimes the unlikely can also happen but I still like to maintain that this is an unlikely option at this moment.