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I would like to make the proposition that the DOW Industrials and the Nasdaq
are tracing the same pattern except the DOW is leading the Nasdaq by a few
weeks. The DOW underwent a sharp correction which was followed by a sharp
recovery. The DOW's momentum is ebbing away and it appears that it will
make a lower high. The Nasdaq has made a sharp correction and now appears
to be making a sharp recovery. Today's recovery was strong, however it is a
long way back to 5000 and a lower high appears to be in the cards to me.
Although Charles DOW used the Industrials and the Transports to formulate
his DOW Theory, any two indexes holding stocks with significantly different
characteristics can be used to apply the theory. Presumably the DOW and
Nasdaq are significantly different because one reflects the "old economy"
while the other reflects the "new economy". It makes sense that the DOW
should lead the Nasdaq down since it includes a higher proportion of
interest rate sensitive stocks. The effects of rising interest rates should
be seen in the DOW first.
According to the DOW theory, the direction of the market can be determined
with certainty when the two indexes confirm each other. Both the DOW
Industrials and the Nasdaq have made lower lows. It appears that the DOW is
making a lower high. If the Nasdaq fails to make a higher high, it will
confirm the DOW's downtrend and confirm a bear market according to DOW
theory.
That's what I got from my "book learnin'" so far. I am trying to get a
handle on Elliot Wave now. An analysis of the current DOW and Nasdaq by
some of our Elliot Wave experts would be instructional and appreciated.
Thanks,
Dan
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