Dow Jones Industrial Average has cranked up its gains lately increasing nearly 2% in the past 5 days. In our previous report, we wrote:
“If DJIA can break and hold above 22,372…then there is an immediate bullish move we are anticipating.”
We did get the break higher so it is time to head to the sidelines. You see, the longer term technical uptrend is mature enough to consider most of the gains are behind us. As a result, we need to be vigilant of a souring uptrend.
From a longer term perspective, we have been bullish DJIA since June 2016 anticipating a move to 21,000+. Now that we are here, we can count the larger impulse wave as being nearly complete. For those unfamiliar with Elliott Wave Theory, an impulse wave is constructed with five waves and we appear to be in the later stages of the fifth wave.
Dow Jones Industrial Average - How Much Further on the Trend?
According to Elliott Wave Theory, within the fifth wave we should see it subdivide as five waves. Closer inspection upon wave 5 below and we can see it appearing like an impulse wave. That is to say red circle wave v could be nearing an end. Remember, a fifth wave is a terminal wave and it is looking like we have fifth waves at multiple degrees of trend forming.
There is a cluster of wave relationships on a medium term and longer term perspective showing up near current levels (see arrow on chart below). Additionally, it is common for fifth waves to diverge on an oscillator compared to third waves. We are seeing RSI divergence on the daily chart below which is common in a fifth wave advance.
As the daily chart above illustrates a longer term top possibly carving near current levels. One alternative we are watching is that prices may be peaking now in a red circle wave iii. If that is the case, a correction back to 20,371 to 21,600 is typical and normal for wave iv.
In either scenario above, DJIA may sell off in a correction. Again, the current trend is higher so we are not looking to position short. We are simply pumping the brakes, tighten risk and begin to identify bearish patterns if they print.
The DJIA trend is quite mature so have an exit plan ready before you enter. Read other traits we found of successful traders here.
Want to learn more about Elliott Wave analysis? Grab the Beginner and Advanced Elliott Wave guides.
---Written by Jeremy Wagner, CEWA-M
Discuss this market with Jeremy in Monday’s US Opening Bell webinar.
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