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How will the US market fare in the following weeks? The Dow theory may be able to offer some advice. The technical chart for Dow Jones Industrial and Transportation Index (DJT) suggests that the bearish sentiment may be prolonged.
First, the Dow Jones industrial daily chart has expanded into a corrective expanding triangle formation. The current wave count suggests that the index is forming the (iii) leg of the E wave. Should the immediate resistance level of 25332.70 be broken, then there is a probability for the index to head towards 23799.14, which is the Fibonacci expansion level of wave (i) and (ii) of the E wave. However, there is also a high possibility of the (iii) wave extending to 23020.27 should price break through the 161.8 expansion level, forming the 3rd impulse wave.
Based on the Dow Theory, the trend of DJT is a good confirmation for Dow Jones Industrial Average (DJI). There is a strong correlation between DJI and DJT. If DJT trends downwards, any uptrend for DJI is unlikely to be sustained. Since Apr 2019, DJT has been making a series of lower lows even though the DJI is breaking new high. However, the subsequent fall of the DJI in mid-July proves the usefulness of the century-old theory.
DJT has broken below the 10000 psychological level this Wednesday, closing at 9884.35. Chances of the DJT breaking below 9717.42 support level 1 is high. Should it be broken, the next price level we will be looking at is 8629.07.