Milked Dow Cow Looks Down ~ The Risk Averse Alert

Thursday, May 23, 2013

Milked Dow Cow Looks Down

A closer look at the market's advance since the latter half of April might make current expectation for a short period ahead spent topping, this lasting some days, a no go. In other words, this year's advance very well could be in the midst of meeting its first substantial challenge, this at least to the effect of seeing gains made since the latter half of April largely given back.

Substantiating this modified outlook is the above Elliott wave-based view applied to the Dow Jones Industrials Average showing a 5-wave channel containing the index's advance since its mid-April bottom. Typical 4th wave versus 2nd wave technical deterioration is evidenced via RSI (top panel), with the 4th wave completing early this month (May), and the 5th wave proving the extended wave in the sequence.

Most often the 3rd wave proves the extended wave in a 5-wave sequence. Indeed, wave 3 of five waves up from mid-November bottom is likely to prove the extended wave, much as wave iii of 3 likewise proved during formation of wave 3. Note, however, wave 5 of iii was the extended wave of the five waves forming wave iii of 3, while the Dow's best technical disposition was displayed during formation of wave 3 of iii of 3, thus demonstrating a typical 3rd wave's dynamism.

Whatever is upcoming during formation of wave 4 of five waves up from mid-November—whether yesterday's wave 3 peak is exceeded in the interim—we can look forward to technical deterioration sinking RSI (top panel) and MACD (bottom) below levels at which these measures respectively stood at the conclusion of wave 2's formation late-December 2012.

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