For the past 3 weeks, we have been on record saying that the DJIA should head down towards 6900 in what we expected to be a wave 5 move. While the index has exceeded our stated target, it does not invalidate our view that this is the final wave 5 move. The RSI indicator is now at an extremely oversold positions and at levels, which historically preceded rallies. At the very least, we expect a rebound today or the next day, however there is a chance that this could be a small wave iv countertrend rally within the downward wave 5. Even so, we believe that the extreme bearish sentiment suggests that a major low is in the making. We have attached 3 charts here to underscore our view. The 10 day avg of declining stocks on NYSE is approaching a prior peak in October, which resulted in a significant rebound. This again highlights the prevailing extreme bearish sentiment , which could potentially reverse soon.
As we write, this both the FSSTI and HSI have rebounded off their lows. Expect both indices to at least close their recent gaps. For the FSSTI, this would mean 1584, for the HSI,12300 and then 12800.
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