Wave “B” has begun?

Wave “A” down leg since Oct 07 has already ended? 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 as shown in Figure 2. Our previous preferred wave count (Figure 1) becomes our alternative wave count. In Figure 2, the wave “a” uptrend 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, probably a 50-61.8% retracement to complete wave “b”. Usually, wave “b” corrects 50-61.8% of wave “a”, presenting investors a good opportunity to position themselves for wave B.



5-wave trend ending soon. The DJIA’s 30-minute chart shows that it has likely completed the 5-wave uptrend since 7 Mar. We expect a sharp pullback towards the 50-61.8% FR (6,900-7,000) before a near-term bottom. The MACD and RSI indicators are already showing negative divergence signals.



Could DJIA still fall below Mar lows? We do not dismiss the possibility that the DJIA will continue its medium-term downtrend below the Mar lows after this rebound. However, based on the recent behaviour of the US stockmarket, we believe the probability of this happening is low.

100% confirmation if… One of the rules of the Elliot Wave Principle (EWP) is wave iv cannot overlap the end of wave i. The end of the wave 5 down leg would be confirmed if the DJIA and S&P rallied above 7,909 and 804pts, respectively. These were the levels at the end of wave i based on our earlier preferred wave count. This has not happened yet. Only NASDAQ Index’s wave iv has overlapped wave i recently.



Wave count revised for Asia. In view of the upswing 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 v, ending above the Oct 08 low.

Minor wave i just started, 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, probably towards the 50-61.8% FR once the rebound ends to complete wave ii. This should offer investors an opportunity to accumulate stocks.