The support levels that have been broken as shown in the DJA index chart (below) - which along with the Dow Jones Industrial Average and the Dow Transports was one of the last remaining really bullish charts (measured by height of the rise above the year 2000 highs) - have ruled out the ability to look for a diagonal fifth wave up from these levels, even if you could count the year 2000 highs as a first wave. (In that case, the rise into the 2007 highs really would not have counted as a third wave due to the time and price factors of a diagonal structure.) Now, I can add the Dow Jones Transportation Average (the Dow Transports), for which my charting capability goes back farther in time, and that chart is the second chart below. You can see that the candle "body" of the monthly candle in the Dow Transports did respect a parallel channel formed by the upper trendline, even though the candle "tail" spiked under that trendline when going to the .786 retrace we've mentioned often here recently regarding the Dow Transports. Because the Transports moved to the 3000 level we've also mentioned, if they can clear that then perhaps the most "bullish" target would be a kissback up to the longer-term trendline that was broken as you can see on that chart. But there's also significant moving average resistance in between. But - let's not lose focus - what's the big picture telling us? The Dow Transports, along with the other indices discussed here, have much lower levels awaiting after the bear market rally completes.
I've also included below some monthly charts of the Dow Jones Industrial Average ($INDU), the Nasdaq ($NDX) and the S&P 500 ($SPX). These cover a shorter period of time, approximately 14 years. The point here is to depict that these equities indices have also broken under significant support levels. Many have talked about the Nasdaq market, with its cutting-edge sectors like biotechnology, leading the markets forward. I don't disagree that such sectors are likely to outperform. But if Prechter is correct about most or all of these markets having put in a "B" wave - and whatever your Elliott Wave views are about the particular counting method, the point is really the same - then even the Nasdaq market, along with the Dow Transports and the Dow Jones Composite Average, will be punching to much lower levels.
Tony Caldaro with his Objective Elliott Wave work also has a big-picture count for the major indices. His chart of the Dow Jones Industrial Average from about 1977 is also below. You can see that he's projecting to much lower levels, once the bear market rally has concluded.
What about the fundamentals? Well, we have presented information available from a number of sources showing that earnings really have fallen to levels not seen in decades, and showing that the current price-to-earnings (p/e) ratios really are still too high to consider this a buyer's market. We also know that credit spreads have improved recently, and real estate may be in a bear-market rally, and these factors are also helping to support the improved mood and bear market rally. We're not going to delve into those in detail, because these topics of economics and earnings are well addressed elsewhere already; although we'll refer to them from time to time of course. Right now, we're more interested in the very long-term cycles that indicate where the markets are likely to head in the months and years ahead. It's what the cycles might also mean for affecting those fundamentals that will also drive how this big picture plays out.
So again, this view of the big picture isn't meant to alter how you approach the next weeks from a trading perspective. But it may help you to assess your investment objectives for the coming months and years. The next post I'll make on this topic will address information about Kondratieff waves. In the meantime, here are the charts to which I've been referring in this post:
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