DJIA in advanced stage of wave 5 move

US indices have been in a downtrend for a month amid concerns over banking stocks, in particular Citigroup and Bank of America, with persistent rumours over their nationalisation by the US Government. Both stock gapped down on Friday but closed off their lows well below opening levels. Both stocks have fallen by more than 50% since February, suggesting the market is heavily betting on nationalisation.

For the Dow Jones Industrial Average (DJIA), we were on record as saying that a wave 5 move would eventually unfold and that the index should decline towards 6,900. This view remains valid. There is a strong likelihood this level would head to that level over the next seven days. We highlight two possible scenarios in this report. One is that the index is tracing out in a normal impulsive wave 5 decline towards 6,900 and the other, that the index traces out in a descending triangle formation or what is known as diagonal fifth in Elliott wave terminology. In both cases, we expect the index to test the 6,900 level. The positive divergence on momentum indicators suggests this is a terminal move and once complete, would give way to a significant rebound.

For Singapore, the minimum downside was the gap at 1,678. The index had declined below that level and the next important support is the November low at 1,570.