June 2008 Commentary

This month we shall look at the Dow Jones and its direction. On first observation we could conclude that the trend is sideways and even a little bearish. Elliott technique however provides some tools to build a better overall picture of this pattern. The chart shows that a wave (5) is underway and while it is weak in momentum at this time, it is too early to put aside the bullish potential of such a wave. Until price retraces below the last support of 11500, we must assume that our pattern is still valid and we plot various targets based on Fibonacci. If price reaches the level of the 38.2% displayed (a little over 14100), it will be the first sign towards the confirmation of an impulse wave. The second step will be very close when the Dow Jones penetrates the resistance at 14279.

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From that point on, the fifth wave will be established and we will be able to measure its strenght and continue monitoring its progress towards the projected levels. We should pay attention to the specifics of the preceding third wave as it was an extended and very powerfull move. The last wave of the pattern could be much less powerfull as a lot of the momentum was dissipated earlier. It could nevertheless pause a little to gather some momentum and then explode. There are many indicators that can warn us when such a build-up is taking place. The point is that we should venture in a trade with milestones and measurable expectations so we are able to take an appropriate action should the behaviour be modified. This is where certain techniques are superior to others in that they provide the means to measure, document and set expectations.

 

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