Saturday, May 2, 2020

Dow (23,723) - Wave B rebound is ending

Dow dropped sharply on Friday on Donald Trump threat to impose tariffs on China in retaliation for the Covid-19 pandemic. Investor sentiment was also affected by the unemployment figure that reached 30 millions. Dow dropped a total of 910 points (-3.69%) in two days to end its sub-wave iii in a timid way.

Next week, if there is any run-up with average or lower volume and if Dow is unable to cross the 25,000 level, we may witness the end of the wave B or the end of the 'dead cat rebound' or the end of the 'sucker wave'.

If the following wave C were to follow wave A with a 38.4% drop, wave C is likely to end somewhere near the 15,300 level for a close to 10,000 points drop.

Another possible outcome as shown below will give the Dow slightly longer time to complete its wave B. The wave (iii) in this case is likely to be a weak run-up with average or below average volume, a 'half-dead' run-up to end the wave B.

But if the wave (iii) run-up is dynamic with very very high volume, then the mega wave (3) scenario will remain alive. It all depends on how successful is the reopening of the economic activities, how well is the Covid-19 being controlled and how well is Donald Trump behaved.

If Trump were to continue with his war cry against China in order to create a common enemy for the American to hide his weakness in his handling of Covid-19 and to improve his popularity in his run up to the presidential election, mega wave (3) scenario looked very unlikely at this moment.

Watch out for Trump unpredictable action, escalating trade war and tension at South China Sea and a possible Covid-19 second wave caused by the reopening of economic activities.

Ultimately sometimes in the future, I expect the Dow to collapse due to the high US national debts and the ultimate breaking down of the US dollar (no more unlimited printing of USD). But I expect that to happen only after Dow has completed its super wave IX that also marked the end of the grand super wave (III). The grand super wave (IV)'s correction/pullback is going to be of the magnitude of that for the grand super wave (II) of 89% during the 1929-1933 Great Depression.


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