The Chart du Jour

Closer Look at the Dow

November 20, 2001

By, Barclay T. Leib

Chart constructed with Advanced GET End-of-Day

In the chart above, we show the Dow Jones on a daily basis since its significant high back on May 22, 2001 at 11,345.70.

For people who like a beautiful Elliott wave pattern, our first decline after that high ended in a July 11, 2001 low at 10,120.90, and was a textbook 5-wave affair. We have labelled this as a Wave 1 down. This was followed by a choppy retracement period that we have more tentatively labelled as a Wave 2. September's collapse was then a typical and violent Wave 3 decline. Everything past September 21, 2001 continues to appear best labeled as a sharp and large A-B-C Wave 4.

Now Elliott practioners worth their salt also know that a Wave 1 and a Wave 4 should never overlap. So this now gives us another level, 10,120.90 on the Dow, to lean against in re-establishing short biased positions. As long as our current rally fails below 10,120.90, then another decline (perhaps a failed fifth wave down, or perhaps a decline that reaches our previously espoused 7725 downside target) should transpire.

Wave 5 downmoves often travel a distance equal to 61.8% of the distance travelled by Wave 1's start to Wave 3's end. Wave 1-3 taken as a whole was a decline of 3,283.40 Dow points, so .618% of that distance would equal 2029.14 points. Subtracted from Tuesday's Dow high at 9976.70, this yields a target of 7947.56 -- or marginal new lows just far enough below our September 21 low to scare the hell out of people once again, and just a 220 points shy of our Fibonacci target that could be reached on an intra-day overshoot. This rough downside target will of course adjust up a bit if the Dow can still meander to marginal new highs in the short term.

Overall, it appears to us that the markets may enter Thanksgiving feeling happy, but come out of it with new fears starting to fill the horizon. We'll allow for a bit more work in this market, and maybe even marginal new highs (1061 still being possible in the very short term basis the S&P 500), but as long as 10,120.90 on the Dow is not intersected, the next large move for both these markets should soon be to the downside.

Above 10,120.90, we will turn agnostic once again and go back to scratching our proverbial head as to how to appropriately label this market.

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