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DJIA Sell Signal

DJIA Sell Signal

Courtesy of Allan

Below is a monthly chart of the DJIA with both a long term Trend Model (low volatility version) and a long term Elliott Wave count.  In addition, I’ve added the elements of an Advanced GET Mechanical Sell Signal which as of the end of May has generated a fresh SELL on this monthly chart.  [Click on charts to enlarge]

(1) Trend Model:  The Monthly Trend Model has been on a SELL since June, 2008 @ 11,350.  The rally that began in early 2009 was insufficient to flip this model from its entrenched SELL MODE and now it appears that prices are once again in sync with the dominant trend, DOWN.

(2) Elliott Wave Count: In terms of Elliott Wave counts, this one shows a completed multi-decade five waves up, terminating in October, 2007.  I would expect at a minimum, a decade of lower prices.  Whether current prices are in an ABC, or have traced out  Waves 1 and 2 and are now in Wave 3 DOWN, is academic.  Whether a Wave 3 or Wave C, both are third waves, so the expectation is hard down under either interpretation.

(3) Mechanical SELL SIGNAL:  Below is a close-up of the most recent five years which culminated on Friday with an Advanced GET Mechanical SELL SIGNAL.  The elements of this very reliable, objective signal are Waves 1-4 shown on the chart; an Elliott Oscillator which goes from way oversold to neutral (bottom study); a False Bar Stochastic Sell Signal (top study); and a break down of the Trend Regression Channel (broken on Friday’s monthly close). The upper target for this move is shown as about 4,500 on the DJIA, the lower target (not shown), just below 1,000.  

  

One more heads-up for the days and weeks ahead.  Below is the DJIA monthly chart using my standard Trend Model settings (as opposed to the low volatility settings above).  Note that the rally from 2009-2010 was enough to flip this model LONG last September.  But more importantly note where the model will flip back SHORT: any monthly close below 9,601.84:

In a prior life (1977-1994) I practiced law and that experience, believe it or not, does at times help with dealing with market prediction  The legal system has its own specialized sets of rules, evidence and associated standards of proof.  One of major concepts in assessing subjective criteria, especially in terms of constitutional rights and probable cause, (or as it is know today, is he/she an illegal immigrant?), is a concept called, Totality of Circumstances, i.e. a standard for the evaluation of evidence suggesting that there is no single deciding factor, that one must consider all the facts, examine all of the factors,  and reach conclusions from weighing each factor within the context of the whole, "the gestalt of the totality of circumstances test. (Arizona v. O’Meara 198 Ariz. 294, 296, ¶ 10, 9 P.3d 325, 327. (2000)).

The analysis above sets out the case for probable cause that the market is heading lower, maybe much lower in the months and years ahead.  As we go along, I’ll periodically review this analysis and if anything changes, will post it here.  Court adjourned. 

****

Allan’s explanation of his Trend Following System:  "My tools are simple, but powerful. Subscribers not only get my proprietary Trend Following Model, but they get me; access to me for questions and/or learning through private email exchanges. In its most basic iteration, the Model draws a trend line for any symbol, for any time period. It then trades LONG when prices are above the trend line and SHORT when prices are below the trend line. An elegant, objective, purely mechanical application of a trading strategy based 100% on identifying and then following current price trends. The service covers about 50 ETF’s and stocks on multiple time frames, including Hourly Models in SPX and QQQQ for shorter-term analysis." Subscriptions to this private email list are $100 per month, with a 25% discount for Phil’s Stock World readers.  Click here. 


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  1. "so the expectation is hard down under either interpretation…"
    It`s doubtful
    The Elliot theory  gives us many other variants. For example, a wave C (which is more probable because of too deep correction designated on the chart as 4) can develop as a triangle which will not reach a new minimum


  2. After looking at the Elliot Wave Theory after the one day crash, my conclusion was the crash could not be considered the second wave because it had explainable cause. This same theory was brought up after the crash of 1987 with much more real example but still proved what I believe is again, trying to slam the square peg into the round hole. I have no idea where we are going although short term looks up. That said I believe that sooner or later we have to pay for all the past and it won’t be fun. What about this is the healthy correction everyone wanted? What do you say about 2010 set the double bottom?


  3.  No matter what you use to trigger your trades, its all a matter of probabilities. My highest and most probable model is the trend model and its in down mode.  EW tries to put it all in some semblance of structure, but as you point out, there exists alternative structural solutions, some at odds with one another.  "Hard Down" is not doubtful, nor is it likely, its just an opinion.  "Down" on the other hand is a fact, prices are below their trend line, a purely objective, mechanical observation that is the basis for a credible market position.  Everything else is simply fluff.