With two new record closes this week and a third one on the queue today, the obvious answer seems to be “NO”. But traders and investors should always be willing to look behind the curtain.
“Another new high should be expected, probably around 17 300, but then the bears should take control of the situation.” This is an excerpt from an article about the Dow Jones Industrial Average, which we published on August 21st. Now, less than a month later, we would like to show you an update, not because much has changed, but because if there is such thing as a “perfect” ending diagonal, this must be it.
According to the Elliott Wave Principle, ending diagonals:
1. consist of five waves;
2. develop between two contracting trend lines;
3. waves 1 and 4 overlap;
4. each wave subdivides into a corrective three;
5. wave 3 is shorter than wave 1; wave 5 is shorter than wave 3;
As you can see, the above-shown pattern has all these characteristics. Wave 1 is the longest, wave 5 – the shortest. Waves 1, 2, 4 and 5 are simple zig-zag corrections, labeled a-b-c, while wave 3 is a double zig-zag, marked with w-x-y.
So, Dow Jones reached above 17 300 as expected, but ending diagonals are usually followed by a “swift and sharp” reversal. Having an ending diagonal is almost the same as having a big red STOP sign on the chart of the Dow.