That common phrase, “Sell in May and go away” is likely to be regurgitated on the financial news outlets over the next several months as the Dow Jones Industrial Average begins a deep and dark descent, according to our own Elliott Wave analysis.
While the main catalyst for lower price lows is yet to be determined (trade war, summer selloff, political change, etc.), we do know that the initial equity market price decline in early 2018 is far from finished.
In other words, the bears are back…
Let’s look at the charts to help explain our outlook.
The initial leg of the A-B-C retracement sub-divided into its own internal a-b-c wave structure. This downward move was followed by a brief Wave B “relief rally” which also had an a-b-c sub-division. This brings us closer to today’s action; the final descent of a potent Wave C.
Wave C within a retracement will at least duplicate the length of the initial Wave A. So, let’s see where this conservative price point places us in the months to come.
If the height of Wave A was approximately 26,600 and the price low came in around 23,500, we can expect the DJIA to shave off a minimum of 3,100 points from the height of Wave C. So, this amount subtracted from 25,300 (Wave C height) gives us an immediate low of 22,200 for the Dow.
Now, let’s determine what is most likely to happen. Wave C often extends to 1.618 times Wave A or beyond. Using this information as a guide, we’re looking for a low to realistically come in around 20,300 or so, not far from the psychological Dow 20,000 “line in the sand” for investors.
This type of move is projected to bottom just shy of the holiday season toward the end of the year, depending on the level of sub-divisions that take place in this final Wave C, so plan accordingly.
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