Posted on November 4th, 2008 at 8:50 AM

In recent weeks, we have been looking at where the Dow is, and possible scenarios as to where it can go from here. Several weeks ago, I made the statement in the Mentoring that the range we established the week of 10/06/08 should remain until after the election. It is such a large range (2440.25 points), and it's high and low act as support and resistance until something comes along strong enough to push us through one way or the other. I also said that I didn't think it would matter WHO got elected, just that the election would be over, and that would "free" the market to go where it intends to go. Well, here we are on election day! It's finally here, and the market is on the Bullish side of that range, pointing to a possible up-swing after the results are known.

If we do wind up swinging to the top, this could form a Wave 4. Historically, Wave 4 pulls back between 38% - 62% the length of Wave 3. Cutting that range in half puts us at 50%, which brings us to around 10500. That would also mean that Wave 3 was over; stopping at our MOB (taken from the previous 4 on the weekly chart back in October of 2004) and near 1.618 extension of Wave 1 (just below 9000), which are both historical levels at which Wave 3 should terminate.

A Wave 4 at 10500 gives us some data for which we can project possible levels for a Wave 5. Wave 5 usually terminates between 62% and 100% extension of Wave 3. That puts us somewhere between 6600 and 4200 to the down-side. Corresponding with that range is another large MOB. This one was taken from the previous Wave 4 on the Monthly chart (from October of 2002). The MOB level correlates with the FIB level which correlates with the Elliott extension.

The Daily Dow chart is also preparing for a Wave 4. However, 62% retracement on the Daily is below 10500. If we violate 62% retracement on the Daily, then the Type One setup would be invalidated. However, remember that the weekly doesn't HAVE to pull back 50%. It can pull back only 38% to be a Wave 4 of historic proportions.  That level is around 9900, which is 50% on the Daily chart. It will be interesting to watch how these two time frames interact with one another. We could get some powerful setups if these two wind up working in concert. We'll just have to wait and see.

Be Prepared!

Nate McCartney

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