The Dow’s Analog: April 16, 2012

The Dow is setting up with the same chart patterns and harmonics as SPX, leading me to believe it’s also on the path to completing an analog of its Feb-May 2011 top.  The big difference is that DJI already came very close to and reacted off its .886 Fib.

However, this doesn’t trouble me too much.  In 2011, the Gartley pattern played out with a 20-pt near miss on the .786 (after a .618 Point B) on Feb 18.  The reaction was pretty significant, with a 834-point swoon over the next 17 sessions.  Yet, DJI swept back up to meet and exceed the .786 by 332 points before topping out in May.

Now, as it’s making a bid for higher highs, it has the same three options as SPX.  Remember, it’s all about getting to the .886 Bat pattern completion (13,217) and then the price level of the rising wedge’s apex — about 13,730.

If the analog holds, we should top out tomorrow somewhere between 13,125 and 13,240 followed by completion of the H&S pattern and a swift decline to 12,320-12,420, then a subsequent rise to a new high in the 13,730 to 13,840 range.

But, if this current rise gets a head of steam on it, we could just go on up and tag the apex and long term midline (red, dashed) around May 7 at 13,737-ish.  There’s a Crab pattern that completes at 13,659 that is already in the works (red Fib pattern.)

The third option will be the trickiest: DJI reverses, nearly completes the H&S pattern, but can’t seal the deal.  It follows the same path of least resistance up to 13,737 around May 7.

The analog and the 2nd alternative are shown on the chart below.

As it now stands, DJI has retraced about .707 of its recent decline.  It can go as high as the .886 at 13,230 and still form a decent H&S pattern.  Any higher and it starts looking really wonky.  A rise above 13,284 means we’re likely pursuing the alternate instead of the analog.

For now, I’m expecting the analog to hold.  The RSI chart, particular, shows a distinct possibility of a turn in the very near future (note the red, dashed line.)

Good luck to all.

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