September Commentary

How is the market holding is a fairly reasonable question to ask at this time of the year. The summer vacations are over and as we settle in our business again we want to reassess our positions. First we will look at the Dow Jones. After the peak of May, a correction took place retracing to almost 61.8% of the false wave 4 of April. Why is it a false wave? It does not quite fit a proper pattern as the preceding wave 3 is too short. For the pattern to be correct, a very shallow wave 5 would have been expected; instead we got a fairly good extension of the wave 3. The correction we have underhand has to be a wave 4 and although the retracement was 61.8% of the light grey 4, it is only 50% of the October-May wave. The question is are we now in a wave 5 where we could expect the market to top the peak? Well it is close to an 8% retracement from the trough (it is 7%), as soon as it crosses 115.50 we have a wave 5 under way.

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How strong will the wave 5 be. It could make it first to a 125.00 level and if the momentum is there it could continue to 130.00. The problem that we can anticipate is that the Demand Index is already showing a weakening of the momentum. We know that wave 5 can falter very rapidly. Tom Joseph once wrote an indicator to measure the probability of a wave 5 taking place. The indicator was named the PTI and if it was above 35, one could assume a wave 5 would take place. The PTI is presently above 35 (it is at 76). In any case, we must first confirm that a wave 5 is taking place by crossing the 115.50 level. Then a close attention must be paid to the position as the momentum is not yet there.