Analysis - Monday, July 29, 2002 8 p.m.
On Sunday, July 21 we stated the following in regard to our
outlook for a market low near July 23: "One of the strongest arguments for
some sort of low next week comes from the wave structure. As we count it,
we are in wave 3 down from the March highs of this year, and down near the
end of wave 3 at that. We would look for a wave 3 low at some point next
week, and then the start of the strongest rise we have seen since the May
17 highs of this year, when wave 3 down began. It would not surprise us if
that rally carried the Dow back up near the 8700 area, or perhaps somewhat
higher. However, the wave structure still suggests that yet another 5th
wave down will likely follow into our early to mid-August target, and 5th
waves down in a crash can be devastating."
The Dow reached a closing low of 7702 on July 23, the exact date
we forecast for a low, and as of today's big rally the Dow has since risen
over 1000 points in just four trading days, closing today at 8711.88. Most
of the street has been shocked by the strength and speed of this rally.
That it would happen in just four trading days, we could not have
predicted, but that it should happen in this time frame was clear from our
work. Well, we have now reached 8700, so now what?
There are reasons to believe that we are likely near some sort of
high now. There is a 10- Day upside projection for the Dow calling for
8872, plus or minus 138 points intraday. That projection calls for a
minimum of 8734 intraday. Today's intraday high was 8747.39.
We normally look for the Dow to reach some sort of high when it
rallies up near or just above the top of its 21-Day 3 1/2% Exponential
Trading Band. The top of that band today was
8888 intraday.
The Cycles call for the next short-term high near July 30, plus or
minus 1 day.
The big question now being debated on the street is was July 23 the
final bottom? We believe we have made our position on this subject clear.
We have stated that the low we expected last week would be the bottom of
wave 3 down, of what would eventually be a 5-wave decline. This would mean
we are now in a wave 4 rally, which eventually will be followed by a final
wave 5 decline to new lows in August. Is it possible that the final low was
in fact seen on July 23? Certainly! However, we would have to count the
decline from the March highs of this year as an A-B-C decline instead of a
standard 5 wave impulse movement down, which is just not as high confidence
a wave count. Until we see evidence to believe otherwise, we believe there
will be a final 5th wave down to new lows in August. The key will be the
Dow's ability to hold above last week's lows. If last week's print low of
7532 is broken anytime from here on, a much more severe plunge, and panic
will follow. However, if we are correct, this should then create the far
more important bottom we expect in August, and this would be the time to
start buying again.
