Did Dow Jones Industrial Average (DJIA) Top?

19 Dec 2024

The Dow Jones Industrials Average (DJIA), the ticker symbol DJI, by many considered the US stock market, experienced a mini stock market crash in the last couple of weeks. This is not surprising considering that many stock market valuation, technical and sentiment indicators are at 50- and/or 100-year extremes. Although DJIA is not directly tradable, DJI futures, DJI mini and DIA stock (ETF) can be used as trading and investing vehicles.

DJI likely completed five waves from June 2024 and five waves of a higher degree from October 2022, and possibly a start of a multi-month or multi-year bear market

Alternatively, but less likely, one more high might be possible under the orange count. The orange count for the expanded flat wave 4 will be invalidated below the red horizontal line. This should constitute a top of significance and start of a bear market

The DJI is down trending below the 10D EMA (red) and broke below the 50D MA and grey wedge, likely completing an impulse for minute wave ((i)) or orange ((c)). 

DJI found a temporary support at still rising 100D MA and the downtrend line of the parallel channel (grey dashed line. The lower trendline of the blue channel and support above the red horizontal line represent additional potential supports for black ((i)) or orange ((c)). 

A longer-term chart below shows that DJIA completed a top of cycle degree importance. Several things are important to note:

1. Notice that at the top of wave (3) the RSI had a highest value in over 100 years. Subsequently, at circle-3 and circle-5 peaks the RSI exhibited negative divergences, i.e. the loss of momentum, characteristic of scenarios when corrections typically occur;

2. Contracting wedges have bearish implication, gray of intermediate-term, and orange of long-term;

3. DJI broke below  upper trendlines gray and orange wedges, which isa bearish development, and

4. The next cyclical low of significance should rhyme with the trough of the 3-3.5-year cycle, illustrated by the grey sinusoid. That cycle trough is expected in 2026.

The figure below represents the cycle composite comprising Hurst nominal 80-day and 20- and 40-week cycles detected on the daily DJI chart. 

Cycle composite turning points correspond only approximately to price turning points for the following reasons:

1. Some shorter and longer cycles are not included in the composite;

2. According to Hurst’s Principle of Variability, one can expect that some cycles may vary over time in amplitude and period, and

3. There could be small cycle estimation errors.

Finner estimate of turning points can be obtained by including also shorter cycles of significance. But one should not rely only on cycles. Our methodology includes cycles, technical and Elliott Wave analysis for fine prediction of turning points in price.

The cycle composite including multiple reliable cycle detected on the weekly DJI chart suggests a cycle trough in late 2026 or early 2027. The cycle trough is dominated by the strong 3.5-year cycle, known also as Khichin cycle in the finance literature.

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