New Wave Counts and Long Term Update - 2/06/10

The strength of last weeks decline along with poor breadth and the breaking of support levels most likely indicates the bullish wave three count is incorrect. Also, it is not possible to come up with a good five wave impulsive count from the March/2009 low to the January/2010 top. That means we have completed a large corrective wave of some sort at that top.

The March/2009 low is best counted as the ending wave C of a very large flat from the 2000 top. That was shown in the initial long term wave counts given in the March/2009 post. The primary long term count was that a new multi-year bull market had begun, while the alternate bearish count called for a B wave retracement of the Oct/07 to Mar/09 decline followed by new lows below the Mar/09 low. There is another count that was not shown that now appears to be the best count. That count labels the bull move from the Mar/09 low as an X wave. The X wave may end near or somewhat beyond the Oct/07 top. The X wave would then be followed by another very large, probably multi-year corrective pattern. That corrective pattern could be a triangle, zigzag or another flat.

The two alternate bearish counts labels the March/2009 low as wave (A) of a large zigzag within wave [4]. With these two counts, the Oct/07 top is labeled as wave [3] up from the 1932 low. The first bearish count labels the January/2010 high as wave w of B of (A) of [4] while with the 2nd bearish count, the January/2010 high is labeled wave B of (A) of [4]. Both alternate bearish counts would bring new lows below the March/2009 low sometime in 2010 or 2011, but the 2nd alternate bearish count means we are already on the way down below that low. The first bearish count would bring new highs above the January/2010 high in 2010 or 2011, but below the 2007 top.

The updated bearish wave counts are given below. The bearish counts given previously have been analyzed and revised as shown. Initial price targets for all three of these counts are the same as given previously: Dow 9700, 9100-9300(strongest) and 8600-8800. The potential time target is still early/mid March. A close above the 50 day moving average before March 1st without taking out the current lows may negate these counts.

Chart: Five year chart of Dow Industrials (click to enlarge - if still to small, try ctrl +)

Update - 2/4/10

Stocks

The Dow today closed below the 10021-10075 support area. The test of last Friday's low was a failure as that low was broken. The large decline did technical damage that indicates the bullish wave three count from the July/2009 low may not be valid. The odds that we have completed a primary wave (B) or wave A of (B) retracement of the entire October/07 to March/2009 decline are now at least 50/50. That is the alternate count given in the very first post in March/2009.

The wave A of primary wave (B) count seems to be the better count at this time and would bring a higher high in 2010 or 2011. That count means wave B of (B) began at the January top. Initial price targets for this decline are Dow 9700, 9100-9300(strongest) and 8600-8800. That could happen by early/mid March when the next significant cycle confluence is due. A chart will be provided by this weekend that will show these new counts.

GLD

Gold also went below last weeks low and now appears to be heading for a mid-February low when the next gold cycle is due. Wave count is now not clear but I remain long term bullish. The next support is 102-103 given previously and stronger support at 99-101.

Update - 1/31/10

Stocks

The Dow made a slightly lower low on Friday at 10044 and closed at 10062, both within the price range for a low given last week. All major indexes closed at Fibonacci and/or trendline support and sentiment has gotten very bearish. Would not be surprised to see a strong rally early in the week followed by a possible retest of the low later in the week. If Dow 10021 does not hold next support is around 9800. If 9800 does not hold, may have to look at new wave count possibilities.

Gold

GLD went below the December low on Thursday which may negate the triangle formation. It may also indicate this is another wave two instead of wave four but it's to early to tell. There is a gold cycle turning up this weekend and price closed just above fib support that was touched on Thursday. The wave count also looks complete. The low should be in
but if not, the next support is 102-103.