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Cheapest Valuations in Decades Will Trump Panic Selling

Analysts are still pricing in a recession and possibly severe recession.

Wait until DOW reaches 7000 and they start pricing in a depression.

DOW 5000 is still the target for an expanded flat pattern using Elliott Wave analysis. If this target is reached, then economic analysts will start pricing in a severe depression.

Hopefully, my EW tech analysis is correct, otherwise, next support zone on century-long chart is DOW 800 to 1000 range.

Looking at the century DOW chart, the first correction happened during 1928 to 1932 where Dow plunged from 500 to 42 - a deep 90% haircut. Then a massive rally to Dow 1000 followed. Next major correction happened from 1965 to 1980 where Dow failed to break above 1000 in a shallow consolidation range 800-1000. After that, another massive rally to 12000 of year 2000. This is a classic Elliott Wave analysis.

Then another correction starts from year 2000 and still going on until now and the near future. 2007 Dow of 14000 is part of an expanding flat correction (higher high, lower low). SnP500 is the classic double top with 1553 of year 2000 as a starting point for the unfolding consolidation range. Only thing unknow at this stage is whether SnP will be able to hold 780-850 area for a higher low pattern or will it break below 2002 low of 768. Every momentum indicator projects a break below 768 including fibo price projections analysis. However, there are more cases of double top patterns producing higher lows than lower lows. That is where the rub is. Dow and SnP are not telegraphing the same outcome. But for now, the massive drop this last 2 months gives extremely high probabilities (in the upper 90%) of getting lower low below 839 in early Nov 2008 and a pullback consolidation range mid Nov to early 2009 before the floor drops again.

It is still possible that Dow can keep 7500-8000 range for a higher high, higher low scenario since 14000 is more than 138.2% price extension from 2002 low of Dow 7200 (154% in fact). Most expanded flat used 127.2% price extension as resistance (that is where investors/traders prefer to play safe and sell some holdings in anticipation of a false breakout and use the 127.2% price extension to the downside 5293 as a false breakdown buy area).

Expanded flat with 5000 is still the highest probability since most "failed" higher high patterns resolves into lower low. The massive drop from 11500 to 8000 for 2 months is a classic iiird of 3rd wave of a C wave down with more than 90% chance of finally resolving into a 4th up and 5th down to 4750 nominal target. 5000 is a good psychological support while 2846 is an extended 127.2% C wave target (seldom happens). Since a C wave of an expanded flat is extremely fast and furious and purely dependent on panic psychology, usual targets using equal move method is only good as an approximation. Hence, best to use 4500 to 5293 as buy area. 7500 to 8000 range is a good buy area for very long term investors and for technicians familiar with the 127.2% price extension resistance failure (Dow resistance at 13000 failed to hold in early 2007 that resulted to Dow 14200 of Oct 2007) and the SnP double top pattern that usually resolve into higher low.

How to know if 7500 will hold (since the highest probability is a pullback to 9000-10000 in the next few weeks then a drop to 7500 before another sharp rally to 10000 to 10500)?

Answer is if the sharp rally produced a higher low and be able to break above 12000, then Dow will have a chance to produce a running triangle in the 7200 to 16000 range (running triangle being higher high higher low consolidation range with 2002 Dow 7200 already set in. The 154% price extension from 7200 to 14200 provides the potential failure for an expanded flat in most cases. However, most cases still resolved to an expanded flat and running triangle or running flats are more based on hope than in statistics.

A failure to break above 12000 ultimately will yield a breakdown below 7200 with 5000 psychological target.