|We knew a correction was due for the world stock markets. Would anyone have believed a few weeks ago that the correction would be triggered by the Internet? Someone did, as shown by the Dow Average Transportation Index, which started falling a week before the Dow Jones Industrial Average (DJIA) and the S&P indexes.|
|FIGURE 1: S&P 500 AND DJTA|
|Graphic provided by: MetaStock.|
|Figure 1 is a daily chart showing the Standard & Poor's 500 and the Dow Jones Transportation Index (DJTA). Note how in the past the DJTA gave buy and sell signals that tied in closely with the S&P 500. However, on January 18, the DJTA gave a sell signal when it broke down through its short-term trendline. The short-term Elliott wave count shows that a wave 5 has been completed, and that the DJTA has fallen in an ABC correction. However, the correction is not complete because it should fall to the fourth wave of lesser degree -- that is, somewhere between 4650 and 4925.|
This ABC correction is not reflected in the DJIA at the moment, suggesting that the ABC correction could well be an abc correction in a A-wave down. Time will tell. Remember, an Elliott wave count is simply a signpost on a road, with another signpost a little way down the road. Reading those signposts as they appear, and changing one's viewpoint, is important.
|FIGURE 2: DJTA|
|Graphic provided by: OmniTrader.|
|Figure 2 shows the DJTA gave an early warning sell signal at X by breaking below the short-term Vervoort trailing stop. The DJTA then found support on the Vervoort trailing stop (3%) before falling through it and giving a sell signal on January 28. The ergodic oscillator and the stochastic RSI cycle oscillator are both suggesting buy signals, as is the vote line. The vote line, however, immediately triggered a stop signal, as the index fell on January 28. This fall was accompanied by volume greater than average, which does signal weakness.|
Uncertainty always feeds doubt. What happens over the week ahead is very important, as to the depth of the fall and the time before the market starts recovering.
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