Is the Dow Jones Setting up for a 10-15% Correction?

Figure 1. Daily DJIA chart, with detailed EWP count and technical indicators

Namely, the index has now reached and stalled within the ideal green and upside target zone I’ve outlined to my Premium Members for quite some time now. These target zones are for (red) intermediate wave-c of (black) major-c of blue (primary) III and can be used for buying and selling, go long or short, with lower- and upper ends as possible stops, respectively.

When an index reaches such Fibonacci- and EWP-based target zones, expect a reversal or stalling for some time before moving higher to the next target zone.

Negative Divergence supporting Elliott Wave Principle Count

So, let’s see what we can expect. In this case, there is negative Divergence on several technical indicators (red dotted arrows).

• the daily RSI5
• the daily MACD
• the daily Money Flow Index (MFI14)

Although divergence is only divergence until it is not, it supports the thesis that a 3^rd wave is completing as the rally is losing steam and less money is funneled into the index. The latter is critical because liquidity drives markets and low liquidity rallies can lead to swift declines as there’s no buying power to “stop the bleeding,” so to say.

Besides, it appears a diagonal/wedge pattern is developing (black dotted lines): often, price will collapse out of it when completed. For example, a similar wedge and negative divergences formed during 2019 into early 2020. See Figure 2 below.

Figure 2. Daily DJIA chart, with detailed EWP count and technical indicators for 2019

Bottom line

A decline to $28750+/-500 should be expected over the next few weeks. A break and close below $30870 will go a long way to confirm this preferred thesis. But, as long as the Bulls can close the index above $31290 support, a final rally to around $31840+/-50 cannot be excluded before blue wave-IV will start.

From the wave-IV target zone, I then expect a last rally into the upper blue wave-V target zone to complete the rally that began almost a year ago and which may very well be the final rally since 1932—more about that in my next article.