Dow Jones Poised for Rally Before Wave 2 Correction, Elliott Wave Forecast Suggests

Dow Jones Industrial Average expected to rally to 18,877-18,930 range before correcting in wave 2, according to Elliott Wave forecast. US government to release latest monthly inflation update on Wednesday, a key test for hopes of easing inflation and potential interest rate cuts.

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Nitish Verma
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Dow Jones Poised for Rally Before Wave 2 Correction, Elliott Wave Forecast Suggests

Dow Jones Poised for Rally Before Wave 2 Correction, Elliott Wave Forecast Suggests

The Dow Jones Industrial Average is expected to rally to the 18,877-18,930 range before correcting in wave 2, according to an Elliott Wave forecast. The prediction is based on analysis of the short-term Elliott Wave structure, which suggests the index has ended a wave (4) pullback at 17,626.54 and is now rallying higher in wave (5).

Why this matters: The potential rally and subsequent correction in the Dow Jones index could have significant implications for the overall economy and investor sentiment. A accurate forecast of the index's movement could also influence the Federal Reserve's decision on interest rates, which in turn affects the entire financial market.

The forecast breaks down the wave structure, indicating that wave ((i)) ended at 18,226.32, wave ((ii)) ended at 17,795.96, and wave ((iii)) is currently in progress. Within wave ((iii)), wave (i) ended at 18,235.80, wave (ii) ended at 17,875.98, wave (iii) ended at 18,845.86, and wave (iv) pullback is proposed to be complete at 18,706.08. Wave (v) is expected to rally higher to complete wave ((iii)), targeting the 18,877-18,930 range.

After reaching this target, the index is anticipated to pull back in wave ((iv)) to correct the cycle from the April 25, 2024 low, before making another high in wave ((v)) to end wave 1. A larger degree correction in wave 2 is then expected to correct the cycle from the April 19, 2024 low before the index resumes its upward trend.

In the near term, as long as the pivot at 17,626.54 remains intact, any pullback is expected to find support in the 3, 7, 11 swing for further upside. The Dow slipped 0.2% to 39,431.51 on Monday, while the S&P 500 edged down less than 0.1% to 5,221.42. The Nasdaq composite rose 0.3% to 16,338.24.

Investors are closely watching indicators on inflation to gauge the direction of economic growth and the strength of the dollar. The U.S. government is set to release the latest monthly update on inflation on Wednesday, which will be a key test for hopes that inflation may ease enough to convince the Federal Reserve to cut interest rates later this year.

Federal Reserve Chair Jerome Powell recently said the Fed remains closer to cutting rates than to raising them, even if inflation has remained hotter than forecast so far this year. This stance has provided comfort to financial markets and contributed to the stock market rally in May.

As earnings season nears its end, companies in the S&P 500 are on track to report 5.4% growth in earnings per share for the first quarter compared to a year earlier, according to FactSet. This would mark the best growth in nearly two years, with reports already in for more than 90% of S&P 500 companies.

The combination of the Elliott Wave forecast, inflation data, Fed policy outlook, and strong corporate earnings growth paints a complex picture for the Dow Jones index in the coming weeks and months. While the near-term forecast points to a potential rally, the anticipated wave 2 correction and economic uncertainties suggest volatility may persist. Investors will be keenly focused on the upcoming inflation report and any signals from the Fed as key drivers of market sentiment.

Key Takeaways

  • Dow Jones expected to rally to 18,877-18,930 range before correcting.
  • Potential rally and correction could impact economy and investor sentiment.
  • Fed's interest rate decision may be influenced by accurate forecast.
  • Inflation data and Fed policy outlook to drive market sentiment.
  • Strong corporate earnings growth reported, but volatility may persist.