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Will The DJIA Reach 11,000?

03/19/10 08:52:57 AM
by Koos van der Merwe

CNBC is calling for votes on whether the Dow Jones Industrial Average will reach 11,000. What do you think?

Security:   DWIX
Position:   Accumulate

I believe that the Dow Jones Industrial Average (DJIA) will reach 11,498, with my first target 11791 as my preferred target.

There is still no inflation obvious in the United States, and I believe that "the inflation guardian," Paul Volcker, is doing a great job. As long as inflation is low, "Helicopter Ben" Bernanke can print as much money as he likes. Inflation is certainly no imminent threat to the US economy, and I see the Fed on hold. Never forget that a weak US dollar makes US products more competitive throughout the world, which is one of the reasons why the US is pushing China to delink the reminbi from the US dollar.

Further, I believe that there will be no interest rate increase until unemployment falls. Any hike in interest rates will be dependent on jobs growth.

So we have our parameters. There must be job growth and there must be a delinking of the yuan. The interesting thing is that when this happens, and it will, the DJIA will shoot up like a rocket.

Graphic provided by: AdvancedGET.
Figure 1 shows the following:

1 The DJIA is in an Elliott wave 5 of a Wave I with a number of targets. By Elliott wave theory, where wave 5 is equal to wave 1, then the top of wave 5 should be 12320 or close to it (8928 - 6470 = 2458). The length of wave 1 was 2458. Add this to the bottom of wave 4 at 9862, and you get 12320 (9862 + 2458 = 12320).
2. The above is the perfect situation. At the moment, the DJIA is testing the resistance of the top of wave 3 at 10782, as shown. Once it breaks above this resistance, then I believe the following Fibonacci extensions come into play and could act as resistance levels, 10825 (38.2%), 11119 (50%), and 11412 (61.8%). Only one of them does not exceed the 11,000 level, the 38.2% Fibonacci level, which is approximately the high of Wave 3 of Wave I. We could therefore find this a strong resistance level to break.
3. Note that the relative strength index (RSI) (12) is at overbought levels.
4. Finally, volume, although it is looking stronger these past two days, is not showing any investor confidence.

Personally, I believe that although the 10825 level will act as a strong resistance level, wave 5 of Wave I will assert itself, and it should test the 11119 (50% Fibonacci extension). It may take longer than desired with a few hiccups on the way, but my vote with CNBC is yes, it will.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 03/22/10Rank: 3Comment: 
Date: 03/23/10Rank: 5Comment: Koos: Thanks for this analysis. Dick Slayton
Date: 03/23/10Rank: Comment: Very interesting observations on the dow. I am a student of TA. Could you guide me as to how I can improve? I have basic knowledge and am a student for the past 4 years. Sekhar Krishnan

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