- All three indices has been on the downside and since its sell down on September, rebound fails to clear above the high which eventually a regular flat was formed which the report dated on 28th September 2020 predicted a higher chance of it forming.
- The Sell-off in end October was in reaction to the stimulus failing to pass.
- The sell-off may well be a correction and a smoke screen but the prospect into 2022 will very much be in a ranging zone. While all the major U.S indices are making new highs, only Dow remain below the all-time high.
Since the 2008 financial crisis, the success of Quantitative easing has cause the Dow to explode exponentially in the last 10 years and the greatest acceleration of M2 money supply by the Federal Reserve is on March 2020 when the greatest sell off occurs in response to the Covid-19 pandemic. While it certainly pushes the market up with the S&P 500 and Nasdaq reaching their all-time high, the Dow remain sluggish below and it is a worrying factor as the smart money may not be well positioning in. As such, the Dow may signal that the high may be delayed.
Although the previous report have stated that the strong upside’s odds has been increasing, we have also pointed out before in our pass report that the threat of the larger double three corrective wave remains. The question is how low and are we going to have it at all? Only time will tell and the current bearish momentum look strong and the odds of a double three corrective have certainly increase.
One deciding factor is the 24,450-25,000 support region. Should prices rebound strongly with 3 weeks of successive strong bulls, then we can safely say that the double three occurrence will decrease. However, the smaller double three remains a threat which we will explain further in the daily chart (Fig.2b).
We have pointed out that the prospect of a double three and yet at the same time we mention that should 24,450-25,000 support region rebound strongly, then the odds of a primary ((3)) wave will be strong. To add on, the level at 33,000 level must also be broken upwards to validate the impulse move or otherwise, failure to break will increase the chances of a false breakout which a double three with expanded flat characteristic will be formed.
Another price action factor to consider is the potential bullish flag that is forming will act as a potential for a strong bullish continuation should prices rebounded from the support zone 1 this week (2nd November – 5th November)
The leading bullish upside of the Transportation average over the Industrial is certainly a key signs to watch. Although the wave 3 is extended which signify a previously strong upside, the correction may be well deep into the 10,000-9,700 region. Normally, when either of the motive waves are extended, the remaining 2 motive waves normally has equal length in distance. So in the case of the transportation average, the potential rebound from the support zone at 10,096-9,773 could be well truncated 5th wave. In other words, the maximum Dow Transport can reach is at 12,000.
The rebound on the first week of November will be erratic and there are two critical responses to look out for. First, will prices clear strongly above 27,569 and should it fails, prices will resume sell-off to form the last sub-leg of wave (v) of C. If the level at 27,569 clears, the momentum is a key to watch out for as weak upside momentum signals a reversal to form any three waves to form wave X and in this case, a fall will inevitably come which a prolong zig-zag will form the last phase of the double three.
The 2nd factor to look out for is that should support zone 1 rebound with strong bullish momentum, then the prospect of prices reaching 33,000 in the mid-term will be high. Otherwise, the outlook remain a strong double three for now.
Looking closer at the recent price movement between the Transportation and the Industrial, the transportation upside is certainly stronger since June 2020 which was reflected by its steep and elongated upside. On the other hand, the upside on the industrial is much gentler and certainly shorter.
Another point to note is that the Transportation average has broken its all-time high level while the Industrial’s resistance was rejected twice. Trend line analysis reflected that Industrial has broken out of it much earlier and the Transportation has yet to be but soon to be. So the industrial strong bearish downside will certainly push the transportation lower and both averages will then move in tandem and equilibrium.
Similar to what we observe in the Dow Jones Industrial Average daily chart, with the difference being the downside should there be any will be an extended wave C. The reason is because the region is 50% retracement level of wave ((1)) and it certainly will be an attractive zone to accumulate.
Like the Industrial, the S&P 500 need further data and levels to determine whether the double three will occur or just a straight up impulse.
The only comfort knowing from Ichimoku is that the market is not entirely on a strong bearish sell-off as there are no clear indication of Sanyaku Gyakuten, which is Three Death cross in Ichimoku. While prices did indeed range below the cloud, the Kihon Suchi numbers indicated signal that the next peak point will very much arriving with the next 10-14 periods. While how high is it we are unclear but we are certainly the next peak point will be well below 3,500.
While the movement has been far on tandem with the S&P 500 and the Dow Jones Industrial, the current low is very much on a higher ground as compared to the other 2 indices. However, one thing we are ascertain of is that the downside will continue further lower to minimally support zone 1 before a rebound.
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