Global equity technicals - US

Major wave “B” has begun?

• Wave “A” down leg already over? The DJIA’s rebound towards the 7,500 level on Wednesday, above the 7,392pt 50% Fibonacci retracement (FR) of wave iii, is telling us that our current preferred wave count is probably wrong. The wave 5 down leg may have already ended in early Mar, completing the major wave A downtrend since Oct 07.

• Major wave “B” may have started early this month. This should be followed by the major wave “B” rebound, which is expected to take 5-8 months to complete and will peak anytime between July and Oct. The 38.2-50% FR of Wave A targets a rebound to 9,400-10,300pts while a more bullish 61.8% FR targets 11,245pts for the DJIA.

• Revised wave count. We have revised our preferred wave count. The first uptrend leg started early this month but is on the verge of completing this rally. We expect a sharp pullback over the next few days for the US and regional equity markets, likely a 50-61.8%retracement to complete wave minor “b”. Usually, wave “b” corrects 50-61.8%, presenting investors a good opportunity to position themselves for wave B.

• Wave count revised for Asia. In view of the strong rebound of Asian markets over the past fortnight, we have revised our wave count. Based on our preferred wave count, the MSCI Asia ex-Japan completed its wave 5 failed down leg in early Mar, like the DJIA. However, this was a failed or truncated wave, ending above the Oct 08 low.

• Wait for correction to accumulate… The first leg of the wave “B” kicked in a fortnight back but is in its final leg. We expect Asian markets to pull back towards the 50-61.8% FR once the rebound ends and completes wave ii. This should offer investors an opportunity to accumulate stocks.