Performing as anticipated. We have previously wrote that we were expecting Wave 4 to drag the Dow Jones Industrial Average (INDU Index) to lower ground with support seen at the 8,165 – 8,246. Our forecasts turned out to be rather inline, given that the index lost more than 4% in a fortnight and attained a trading low of 8,259 which was just slightly above our support level.
Range trading expected. However, given the muted participation as evidenced by the decline in trading volume during the 361-point retreat in the Dow for the last two weeks, we believe that a 5-Wave Triangle pattern within the present Wave 4 is in the making. This indicates that the Dow may consolidate, further evidenced by the bollinger bands that have stopped expanding.
Key levels to note. The Dow is forecasted to bounce within the quoted resistance and support levels with its trading range expected to contract further in the short-term. Resistance is identified at the 8,877 – 8,928 area, courtesy of the 100% fibonacci extension of Wave 1 and the upper bollinger band. On the other hand, support is positioned at the 8,221 – 8,259 region by virtue of the lower bollinger band and a series of daily lows.
S&P 500 Index: Range trading expected
Expected to turn in a performance similar to the Dow. We have previously mentioned that the move above the 100% fibonacci extension of Wave 1 at the 945 mark by the S&P 500 (SPX Index) had represented a false breakout as the latter eventually lost 28 points in a span of two weeks. We had also written that the S&P is expected to resume its usual trend of trading inline with the Dow – this view remains.
Consolidation in the pipeline. The 5-Wave Triangle pattern seen in the Dow is also expected to occur for the S&P as well while the bollinger bands similarly cease expansion. With the S&P forecasted to consolidate, resistance is identified at the 956 – 960 area as represented by the tip of Wave 3 and the upper bollinger band. Meanwhile, support is located at the 888 – 892 range as outlined by the lower bollinger band.
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