Rebound target. Assuming a 38.2-50% Fibonacci retracement (FR) of the recent decline, the DJIA’s rebound could end between 8,412 and 8,541pts. The S&P500’s recovery could end between 865pts and 880pts. A stronger rebound towards the 61.8% FR pegs the DJIA at 8,670pts and S&P500 at 895pts. But this is expected to be followed by a sharp correction towards month end or early- to mid-Feb, depending on whether the wave “5” down leg or wave “b” is taking place.
Both wave counts may be still in play. Both our preferred and alternative wave counts are still valid. In both wave counts, we are looking for a major down leg after the end of this rebound. If our preferred wave “5” has already started and assuming that wave “5” equals the length of wave “1”, the DJIA could hit 6,600 before bottoming. Confirmation of wave “5” would be a break below its 7,449 Nov low.
7,320-7,449 target in alternative wave count. Assuming the DJIA springs back to the 38.25-50% FR (8,412-8,541pts), followed by a 1,092pt correction, which is similar to the 7-16 Jan decline, the likely target for our alternative wave count is 7,320-7,449. The 7,449 target would indicate a bullish “double bottom” formation. This should be followed by a strong bounceback or late “Obama” rally in Feb.
738-753 target for S&P’s alternative wave count and 624 for preferred wave count. Assuming the S&P 500 rebounds towards the 38.25-50% FR between 865 and 880pts, followed by a 126.9pt correction, which is similar to the 6-16 Jan decline, the likely target for our alternative wave count is 738-753. If our preferred wave “5” down leg is taking place, the S&P 500 target is 624pts, assuming the length of wave “5” equals wave ‘1”.
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