I think that Monday’s session had significantly bearish implications. The fact that, on the Dow, after a 300+ point drop on Friday, and a 170 point drop after the open on Monday, the market couldn’t sustain the subsequent intraday rally, suggests that the bears are in control and the trend is now down.
As I mentioned before, I have identified a prospective Ascending Middle Section pattern on the Dow:
An Ascending Middle Section on the Dow:
Idealized Pattern here:
After Point J, the market is supposed to decline for an amount of time equal to the duration between Points E and J. In our case, that implies a drop lasting 8 months. For the time being, I think that over the course of this correction the Dow will return to its 2013 lows in the 14500-15000 range, and that the NASDAQ Composite and NASDAQ-100 will return to their April 2014 lows at 3946 and 3414, respectively. That equates to a correction of about 18% on both the Dow and NASDAQ.
However, if this correction does last 8 months, and the downward legs continue to be as sharp was what we’ve seen this past week, the indices would likely go even lower than those targets. From a cyclical perspective, it makes sense to have a correction now, but I don’t know why we are seeing panic behavior so early. In my opinion the news isn’t all that frightening now relative to what the bull market has previously endured. In our current situation, it is possible for the Dow to drop 30%, and the NASDAQ to drop 40%, in Primary Wave 4, without breaking Elliott rules for a normal five-wave advance. I don’t think the drops will be that bad but it’s worth considering.