The Dow Jones Industrial Average holds its bearish bias expecting the US presidential election scheduled next November 03rd. Throughout this year, the Industrial Average has declined over 6% (YTD). Although the latest decline looks like a short-term top, the US leading benchmark could resume its advances.
Market Sentiment Overview
The Dow Jones Industrial Average (DJIA) accelerated its declines on Wednesday’s trading session, backed by the market participants’ expectations before the US presidential election scheduled next November 03rd.
The following daily chart exposes the short-term market movements of the Industrial Average. The figure shows the penetration below the psychological level of 27,035.1 pts, which indicates the Dow Jones penetrating the bearish sentiment zone.
Simultaneously, the price action reveals its consolidation below the 60-day weighted moving average, which confirms the bearish bias. On the other hand, the re-test of the previous low located at 26,541 pts increases the likelihood of further declines.
The next daily chart unveils the 90-day high-low range of the Dow Jones Volatility Index (VXD). The figure shows the advance of VXD in the bullish sentiment zone, which confirms the bearish sentiment observed in the Industrial Average, as an increasing (bullish) volatility is mostly associated with declining prices.
Therefore, considering both the Industrial Average as the Dow Jones Volatility Index, the short-term market sentiment bias for the DJ-30 remains on the bearish side. The likelihood of extended declines would drive the DJIA toward the extreme bearish sentiment zone.
Technical Analysis Outlook
The big picture of the Industrial Average reveals that the retracement experienced during the last two weeks belongs to the bullish sequence that began on March 23rd when the Dow started its recovery, following the massive mid-February sell-off.
The DJIA’s technical outlook under the Elliott Wave Theory is unveiled in the following log-scale daily chart. We can see that the primary bullish trend that began with March 23rd’s low located at 18,213.5 pts, which is currently in progress.
In the figure, we see DJIA’s price consolidating in a sideways formation. This stage began once the Industrial Average topped at 29,193.6 pts on September 03rd.
On the other hand, we should consider that the sideways formation moves above the 25,570.2 level, or 33% of the bullish sequence of the primary trend. Therefore, the upward trend remains intact right now, and the current correction represents a pause and not a deeper correction for the US benchmark.
The below 4-hour chart shows the Industrial Average under the Elliott Wave perspective, developing an incomplete flat pattern (3-3-5) of Minute degree labeled in black that looks incomplete.
Currently, Dow Jones completed its wave (iii) of Minuette degree labeled in blue, which belongs to wave ((c)) of Minute degree. This structural series that remains in progress moves inside the wave B or 4 of Minor degree labeled in green.
Considering that the flat pattern looks incomplete, the Industrial Average should see a new lower low, which would reveal a bullish divergence on the MACD oscillator confirming the progress on the fifth wave of Minuette degree. After this move, the Dow Jones should develop a wave C or 5 of Minor degree with an internal five-wave sequence.
Therefore, short-term, we may expect a limited decline, likely toward the 26,050 pts, from where Dow Jones could start to develop a new rally in five waves.