The price movements of financial instruments form repetitive patterns, called Elliott waves. Experienced analysts try to recognize those patterns in order to prepare for the next market move. Sometimes, a pattern can indicate not only one, but the next two consecutive moves. The triangle pattern, for instance, is known to precede the last wave of the larger sequence. It serves as a warning sign that the current trend has one more move left before a notable swing in the opposite direction occurs. With that in mind, take a look at the 4-hour chart of the Dow Jones Industrial Average index below.
Take a look at the structure of the recovery from the low at 21 713 in December 2018. There is a clear five-wave impulse up to 26 696, whose wave 5 is an ending diagonal. It is followed by a contracting sideways correction, which consists of five waves.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
This range-bound behavior fits perfectly into the description of a triangle correction, labeled a-b-c-d-e. If this count is correct, the rally from 21 713 is shaping up as a simple (a)-(b)-(c) zigzag with a triangle in wave (b). This means we can expect one last push higher in wave (c) followed by a bearish reversal.
It looks like wave (c) has the potential to lift Dow Jones to a new all-time high between 28 000 and 29 000. As long as the bottom of wave “e” of (b) at 25 743 holds, the bulls remain in charge. However, investors must be careful once the index reaches the aforementioned area. In our opinion, a long position in the DJIA above 28 000 is not worth the risk.
What will the S&P 500 bring next week? That is the subject of discussion in our next premium analysis due out late Sunday!