Dow Making Fifth Wave Top? Plus New Wave Count - 3/14/10

The Dow appears to be forming an ending diagonal fifth wave up from the 3/9/09 low. According to Elliott Wave rules, that is the only possible count since ending diagonals only occur in the fifth wave or C wave position. That would be followed by a correction larger than any correction since that 2009 low. See chart below for new wave count.

Wave three, which cannot be the shortest wave, was 426 points, so wave five must be less then that. 426 plus the wave four low of 10508 gives 10934 as the max high for wave five. However it only has to go one tick above the January high to be a valid fifth wave.

Timewise, the fifth wave should complete by the middle or end of this week. Tuesday is the Fed meeting, so that may be the most likely day for a top.

Nine month chart of Dow Ultra ETF, symbol DDM (click to enlarge)

Stocks, Quick Update - 3/9/10

It's now possible to count five waves up from the 2/25 and 2/5 lows. This may be a good place to take profits.

Update - 3/07/10

Stocks
Last weeks stock update was pretty much 100% accurate as this initial surge has taken out the previous week high but has not gone beyond the January high except for the Nasdaq. The Dow and S&P may soon follow the Nasdaq. If that happens within the next two weeks, there is some concern that the markets are completing five waves up from the March/2009 low, as there is a strong cycle that is due in that time frame that could bring a top. All it takes is a one tick move above the January high in both indixes for that to be possibility. Beyond there the next price targets are Dow 11010 and 11060.

However right now the technicals and price action are strong, so the bias is that this rally is part of a larger wave up. So the analysis from 2/19 is still the best outlook:

"A mild correction may form the right shoulder of a head and shoulders bottom followed by a rally above the January high. If so, that rally could be quite strong and last possibly into late Spring or Summer. That could indicate the original bullish wave three of three count(or wave five) from the March/09 low was the correct wave count. The wave X of (X) of [4] count shown last time, could also be valid in that scenario. It all depends on how the wave structure develops."

Gold
Per the 2/28 Gold update, GLD has gone above the February high to confirm the inverse head and shoulders low is in. The initial price targets remain at 113 and 116.

Stock Update - 2/28/10

The Dow has come down into Thursday to form what appears to be the right shoulder of a head and shoulders bottom. That is the outlook that was described in the last stock blog update on 2/19. Last weeks high needs to be taken out first to confirm the low is in.

The low on 2/25 was on the day a 3.75 month cycle was due and which will probably take the market to and beyond the January high as also indicated in the 2/19 post. There are some cycle issues that may bring some sideways price movement into mid-March after this initial advance off the low. The initial advance probably will not take out the January Dow high.

Gold Update 2/28/10

Gold looks to be completing the right shoulder of a head and shoulders bottom. That will be confirmed with a move above the February high. The February 5th low of 102.28 is within the range of the 102-103 target given February 4th. The 2/19 post called for an 1-3 week correction and while the price low may have been made on 2/25, the full correction may last longer timewise.

The initial price targets for this up move are 113 and 116 on GLD. These targets are shown as white horizontal lines on the chart below.

Nine month chart of GLD, click to enlarge

Update - 2/19/10

Stocks have moved up and are testing the 50 day moving average as indicated earlier this week. This may stall the advance and bring at least a short term correction into the end of the month. A mild correction may form the right shoulder of a head and shoulders bottom followed by a rally above the January high. If so, that rally could be quite strong and last possibly into late Spring or Summer. That could indicate the original bullish wave three of three count(or wave five) from the March/09 low was the correct wave count. The wave X of (X) of [4] count shown last time, could also be valid in that scenario. It all depends on how the wave structure develops.

The wave X of (X) of [4] count also would allow for a correction below the early February low. That scenario may bring a drop into an early or mid March low. The two bearish counts shown last time could also still be valid, but the bullish scenarios seem more likely as the technicals have improved rapidly.

GLD

The gold chart is looking more bullish, but short term may correct for 1-3 weeks. More detail will be provided on this later.