Dow Back at Record Highs – Where's The News?

In early September I wrote an article that asked the question, “Is it back to buy the dip or time to sell the rip?”
Since the publication of that article, the Dow has moved up over 900 points off of the low that was struck on September 5th. So clearly the answer to the question asked early this month was that it was still indeed time to buy the dip on the Dow Jones Industrial Average.

We now ask how much higher can the Dow go prior to seeing a significant retracement as we enter the final quarter of 2017?

The past month has not been filled with good and or happy news. We have seen three major hurricanes make landfall on U.S. soil, terror attacks both in the U.S and in abroad, missile launches over Japan from North Korea, more failed attempts to pass legislation in Washington and an FBI raid on President Trump’s campaign manager. Any of these events could have very easily been used by the media as the “reason” for a drop in the markets.

Many have been expecting the market to "react" to all of this bad news and move lower. Of course, the markets have done just the opposite as the Dow has now trading at all-time highs. The fact that the market did not “react” as people might have expected it to do on such a string of bad news has made many angry and repulsed.

While the events over the past month have been tragic, and quite literally evil in the case of the terror attacks, the markets simply brushed off these events as if they didn’t even matter. Of course, the reason why the market brushed off these events is really quite simple to answer. Simply stated, none of these or any other exogenous news events matter to the market. The only thing that does matter to the market is the sentiment of those who are speculating in the market.

Only when that sentiment once again turns negative will the market begin to "react" and correct lower. Of course, there will very likely be some kind of bad news that the pundits will attempt to assign the correction in the market. Once again re-enforcing the cause and effect theory that is so prevalent in the mainstream financial media today.

Price Pattern Sentiment Indications And Upcoming Expectations

With the Dow now moving higher beyond the previous all-time highs, I focus on both the structure up off of the August lows as well as the Fibonacci price extension levels for the Dow.

There were several issues with the initial move up off of the 21,600 on the Dow from both a Fibonacci perspective as well as purely structural perspective. The first two series of wave patterns did not follow the typical guidelines that we expect to see for a continued followed through to the upside. Unfortunately, this irregular pattern off of those lows is still leaving us with two distinct scenarios as to whether or not we have a completed pattern in place at current price levels.

Both of the paths that I am watching do still suggest that we are in a larger degree topping zone that should result in a fairly deep correction into the later part of the year. I still cannot rule out that we still will see higher levels into the end of this month and even into November prior to that top occurring, however. These two paths are shown in both white and yellow on the charts below.

Under the yellow path, the Dow would still need to see yet another fourth wave down followed by a fifth wave up to complete the larger degree pattern. Under this case, support for this minor degree fourth wave would come in at the 23,202 -22,148 zone. This would be the support zone that I would want to see broken to give us an initial signal that the Dow has put in a larger degree top per the white path. If that support zone holds then it would suggest that the Dow will still see another high to finish off the wave (v) of the larger degree pattern under the yellow path.

So while it is still too early to call a top in the Dow, I do still remain cautious in the near term as we are still trading in a larger degree topping zone. If and when we break the support levels noted above, then it will give us more confidence that a top has indeed been struck in the Dow. Until that occurs, however, the trend is still up and the market is still bullish -- regardless of how angry it continues to make the pundits.

See charts illustrating the wave counts on the Dow.

Mike Golembesky is a widely followed Elliott Wave technical analyst, covering U.S. Indices, Volatility Instruments, and Forex on ElliottWaveTrader.net, a live Trading Room featuring intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.