If you have read our article about DJIA’s long-term prospects, you know that the bulls have been swimming in very deep and dangerous waters for while now. The shorter-term outlook, however, suggested that a new all-time high should be expected before things get complicated. This is the chart we published back in August, while the DJIA was trading around 18 610.
By applying the Elliott Wave Principle‘s rules and guidelines to the weekly chart of the Dow, we came to the conclusion the index was in the final wave (5) of the post-2009 uptrend. This wave (5) looked like an ending diagonal in progress three months ago, since its waves 4 and 5 were still remaining. Today, it looks like a complete ending diagonal. It was only yesterday, when wave 4 of (5) bottomed out at 17 477 and gave the start of wave 5, which took the index to a new record of 18 769 so far today. The updated chart below visualizes the DJIA’s progress.
The five-wave impulse the DJIA has been drawing during the last seven years seems complete now. It will probably manage to add a few more points to its value, but from an Elliott Wave perspective, this is definitely not the time to join the bulls, because every impulse is followed by a three-wave correction. In this case, a three-wave decline is the least we could expect. Furthermore, waves (v) of 3, 5 of (3) and (5) are ending diagonals, suggesting the bulls have been struggling to keep pushing the prices higher since 2013 and they are extremely exhausted now. Ralph Nelson Elliott observed that ending diagonals are usually followed by a “swift and sharp” reversal. In other words, if the charts could talk, “ABANDON SHIP” is what these patterns would be screaming right now.
