Dow - Recap

It may be good to recap at this stage Dow's chart from a longer term's perspective. There are lots of good news lately. Financial sectors are turning in impressive 2nd quarter results, Germany and France 2nd quarters were up 0.3% respectively (technically they are out of recession), Lee Kah Shing said yesterday, "The worst is over". Larry Kudlow said, "It is a new bull market" and there are many more bullish gurus in Wall Street. But this is supposed to be a crisis comparable to 1929 Great Depression.

From long-term chart on a semi-logarithm scale as shown above, the drop since October 2007 from 14164 to 6547 (-54%) on March 2009 and the rebound to 9398 (+43%) look rather small. In the long term chart it looks rather ordinary and does not have a look that is equivalent to that of 1929.

My Elliontt wave count for Dow is as shown above, Dow is forming the major wave (IV). By the rule of alternation (Elliott wave principle) since wave (II) is a 'sharp and short' simple wave, wave (IV) is likely to take a complex form of a-b-c-d-e 'shallow and long' formation as shown above.

An alternative count is an a-b-c wave (IV) as shown above with a "Head and Shoulders" formation. Based on the economic news todate, it is hard to come out with a reason why Dow can drop to 3000 from say 10500 (-71% drop). Can rule out this possibility at this juncture. So if Dow is truly in major wave (IV) forming a-b-c-d-e complex pattern, assuming March 2009's low is wave a (17 months), Dow is currently in wave b (refer to the 1st chart above).
From the 6-month chart above, we can see that Dow has completed wave (I), (II) and sub-wave 1 of (III). Dow is currently in sub-wave 2 of (III)
This sub-wave 2 can take the form of either a-b-c or a-b-c-d-e. If it is a-b-c, another 3 days can complete sub-wave 2. a-b-c-d-e will stretch sub-wave 2 by another 10 days.

The only worst possibility that we have to be careful is the case, as mentioned in my previous post, the 9398 height of last Thursday is major wave (III), the rebound wave B has ended. This possibility is considered unlikely but in stock market, anything can happen. Yesterday's transected volume of 5.4 billions needed 5.4 billions sell orders to satisfy the buy orders.