Dow-mini: Bears Need to Break Under 33,500 to Start a Big Move Down

  • CastAwayTrader
  • November 20, 2022
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An FLD (or future line of demarcation) is an instrument suggested by J.M.Hurst. In essence its just High, Low, Close displaced by n bars. I use two periods, 8 and 21.

The weekly chart of DJIA shown below showing the high price displaced by 8 bars suggests it can top this upcoming week:

During 2022 YM has been making lower lows and lower highs.

This rally has failed to make a higher high over the previous high made in August 22 = 34,026.

First, I continue to consider this rally the second leg up in a corrective A up, B down, C up structure off the low made by wave (A) down in May 2022:

YM-mini, Daily chart

On the chart above you can see an unfolding corrective “3-3-3” structure: a three wave down decline (red) was followed by a three wave up pullback (black).

Upon completion of that black structure we can get either a three of five wave down structure targeting a new lower low. Now, the question is if the black three wave up structure of the wave (B) up has topped.

First, let me share a strong argument in favor of the scenario where it did top:

YM Daily chart

A couple of months ago I came up with a new projection tool. I proposed to measure subwave (a) of wave (iii) up in order to predict not only where subwave (c) of wave ( iii ) up will top but also to nail the top of the wave ( v ) up.

In particular, I noticed one rule:

– a subwave (c) of wave ( iii ) up tends to top at 138,2% ext of subwave (a) of wave (iii).

– there are few cases when a rally is very strong and in that case a subwave (c) of wave ( iii ) up tends to extend up to 176.4% ext of subwave (a) of wave (iii).

That rule was forulated by me years ago., And I have been sucessfully using in day-to-day analysis and trading.

What I notice recently was

– if – a subwave (c) of wave ( iii ) up tops at 138,2% ext of subwave (a) of wave (iii) then wave (v) normally tops at 176.4% ext of subwave (a) of wave ( iii ) up (sometimes extends to 200% ext), and

– in case of a really strong rally when a subwave (c) of wave ( iii ) up tops at 176.4% ext of subwave (a) of wave (iii), the final wave (v) normally tops at 250% ext of subwave (a) of wave ( iii ) up.

On the chart above note that subwave (c) of wave (iii) up topped at 138.2% ext of subwave (a) of wave ( iii ) up and the rally stopped at 176.4% ext of subwave (a) of wave (iii) up.

In theory bulls could push YM higher to tag the 200% ext = 34,536, but they do not have to do that.

We should also pay close attention to two red retracement fibs depicted in the right part of that chart.

YM has already tagged the 61.8% retracement applied to the preceding rally = 34,100.

But I do not consider 61.8% retracement fib a serious level because every trade and his dog knows about that fib. And this is why, probably, it stopped working while ago.

What really works like a clock is 66.7% retracement, the strongest retracement tool in our toolbox. If bulls decide to test it they will have to push YM up to 34,450.

On a micro level we have a clean picture of a completed five wave up rally off the early October low. You’ve got to get really creative to justify one more push higher!!!

Moreover, I can easily can make a bearish case where YM not only topped but prepared a bearish i down, ii up setup for a plunge targeting 32,675 (target 1).

Note that the micro wave ii up stopped at the critical 76.4% retracement of wave i down = 33,835. That is a critical resistance for bulls.

As long as bears hold YM under that level they will keep that bearish setup alive.

In contrast, over 33,835 bulls will take over again and will get a chance to push to a new higher high with the 66.7% retracement fib to be a likely target (34,458).

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