Dow Jones Industrial Average has been holding the lows realized last week. We have been cautiously bearish and recently wrote how Dow Jones Industrial Average was primed for further correction. We are not certain of the odds of a continued sell off, but we identify a key price zone that will provide us clues to the next move.
DJIA is approaching a trend line created by connecting the August 8 and August 16 highs. This line is important for the near term because a close above the line suggests the near term down trend has abated.
The bullish wave labeling is that the August 8 to August 21 correction is an a-b-c zigzag. This implies a retest of the 22,178 high.
If prices respect this resistance trend line and head lower, then our bearish Elliott Wave model may be taking shape to retest the 21,600 lows and possibly lower levels. We are showing the bearish alternative labeled ‘alt’ on the chart.
The ‘alt’ labels on the chart imply price may soon begin a third of third wave lower, a powerful sell off. Under this model, the trend line connecting the beginning of wave 1 and the end of wave 2 should contain price increases. Therefore, Dow Jones Industrial Average price action near this trend line will provide us clues as to which pattern to favor.
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---Written by Jeremy Wagner, CEWA-M
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