Analysis - Sunday, August 4, 2002 7 p.m.
Last week's action provided little which was really a surprise to
us. The rally last week, at least so far, peaked when we expected it, and
in the general price zone which we had expected and forecasted. Since the
8806 intraday high of July 30, the Dow has since fallen 627 points, to an
intraday low of 8179 on Friday, August 2.
If Friday's lows are broken this week, the Gann Weekly Chart will
turn down. Just as an upturn in the Weekly Chart normally signals that a
stronger rally is coming, at least short term, a downturn in the Weekly
Chart is normally a signal that even lower prices are coming, at least
short term. Since the March 2002 intraday high of 10729, the Weekly Chart
on the Dow has been tracing out a consistent pattern of lower tops and
lower bottoms, the very definition of "downtrend," which we expect during a
Bear Market. Each upturn in the Weekly Chart since the March highs has been
followed by a downturn, which eventually carried the Dow down to new lows.
If the Weekly Chart turns down again this week, it could lead to a test of
the July 24 lows. The Weekly Chart on the Dow will turn down this week if
the Dow falls below 8203 on a print basis and, more importantly, 8179
intraday. The Weekly Chart on the Nasdaq will turn down on any decline
below 1235 this week. The Nasdaq is fairly close to its July 23 closing low
of 1229. If the Weekly Chart on the Nasdaq does turn down, the most
important support for the Nasdaq will be 1192. If that support is broken, a
still stronger decline will follow.
While it is certainly possible that a downturn in the Weekly Chart
on the Dow could lead almost immediately to a decline below the July 24
lows of 7532 on a print basis, and 7489 intraday, we do not, at this point,
consider that mandatory. Despite the decline we saw late last week, and
the probability of a still stronger decline early this week if the Gann
Weekly Chart turns down, this will not necessarily mean the Dow is ready to
break the July 24 lows. This is because, if we are correct about a wave 4
rally off the July 24 lows, the Dow could move down and test the July 24
lows, hold above them, and then begin another brief rally. It is still too
early to tell if the wave 4 rally has ended, even if the Dow moves down
near the July 24 lows. The Dow could still trade in a fairly wide range,
bounded between the July 24 print low of 7532 and the July 30 print high
of 8762, for a few more days before the true 5th wave down to new lows
gets underway.
The Cycles call for a short-term low near August 6, plus or minus 1
day, but we believe any rally off that low will probably be fairly brief,
probably not more than a couple of days before another decline begins.
Another short-term low is due near August 9, plus or minus 1 day, with
another short-term high likely near August l3, plus or minus 1 day. Another
important low is due near August 16, plus or minus 1 day.
Source: www.jerryfavors.com
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