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DJIA And Why You Should Not Worry… Yet

The Dow Jones Industrial Average(DJIA) is probably the most important benchmark stock market index in the world. As such, every move it makes is closely observed. If the move in question is a little bigger and points south, panic is usually not too far away. In this material we will use the Elliott Wave Principle, in order to see, if we should start worrying too. The chart below shows how DJIA has been developing since the 2007-2009 financial crisis.
djia 20.1.16
The theory states that trends, regardless of their degree, move in five-wave sequences, called impulses. Within an impulse, waves 1,3 and 5 are motive and travel in the direction of the larger trend, while waves 2 and 4 are corrective and travel against it. As the weekly chart of DJIA shows, the whole recovery since 2009 reminds us of an impulse, whose fifth wave is missing. We suppose the current weakness is wave (4). Typically, fourth waves terminate near the 38.2% Fibonacci retracement level. That is why we believe the Dow is headed for another touch to this key level, before the bears give up. In other words, the index might even fall below the 15 000 mark, but instead of panicking, investors should prepare for the return of the bulls in wave (5).



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