The Dow Jones industrial average has successfully crossed the 30,000 mark last November 2020. 2021 has proven to be a good start as Dow pushed above 31,000 level. As much as 32,000 is the target, what happens next will need more confirmation as 1.) The cycle phase of wave II has yet to complete and if we dissect the 10,000 points drop last February to March, the subsequent upside which is marked by the rising wedge formation, both are 3-waves structure ((w)), ((x)), ((y)). Hence the wave ((B)) may well be an expanded/flat or running flat in formation.
A cautionary approach towards the market is warranted once prices go beyond the 123.6% – 138.2% extension level. In order to nullify the threat of the bearish sell-down, the Dow needs to successfully clear above the resistance zone beyond 139.2% extension level of wave ((A)). In an event of a sell-off, the resistance turned support zone should be supporting the Dow for a rebound. Failure to complete it will see the Dow falling further to minimum 25,000 region.
The expanded wedge which was first highlighted in 3rd October 2019 has successfully played out. Fast forward, the Dow has successfully cleared above wave D top and on the way to mark out the first wave ((5)) target similar to the above chart figure 1a. The only difference is that once wave ((5)) is completed, the completion of wave I of the cycle phase will then be completed. In other words, we expect a stronger than usual correction to come should the wave ((5)) completes.
The daily chart shows Dow’s slowing of momentum in the actual price chart and the Relative strength index first. Although the Dow had a renewed upside after the correction in September and October 2020, the RSI momentum is slowing in November after flat movement above the RSI 60 resistance level. Fast forward, the RSI is showing a potential divergence and signifies a near term correction is approaching.
