I would like to assume that the Dow is in a mega wave 6 (A-B-C) correction since the 2007 October peak. So far, Dow has completed its major wave A and B and major wave C has started. The target is the 2009 March low of 6547 at this moment.
Dow is currently forming the sub-wave iii of its wave 1 as shown above.
It is possible that sub-wave iii has been completed with the completion of the mini-wave (v) on last Wednesday, and sub-wave iv has started. The next pullback should be able to confirm this.
This is only the early stage of the major wave C, as shown in the 5-year chart, wave 1 of C may reach the 9700 level to be followed by a higher degree 'Head and Shoulders' formation.
Rightfully the major wave C should have started in early 2011, however the US$600 billions QE 2 from January 2011 to end of June 2011 has postponed the event by 6 months.
Under the QE2 programme, the amount of cash being created out of thin air by the Federal reserve and being injected into the banking system was about 4 to 5 billions a day, that was more than enough to delay the correction for the US market, whereas other Asian and European market such the Hong Kong, Singapore, Taiwan, Japan, France and UK markets, they have either peaked in November/December 2010 or in early 2011.
The price Federal Reserve has to pay was the decline in the value of US$ from January 2011 to May 2011 as shown above. This can be one of the reasons why Bernanke has not announce his QE3 until now.
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