A simple model for the DJIA may be emerging

I often look at charts after they have played out and wonder why I didn't see the pattern before.  Hindsight is 20:20 and it always seems so simple after the fact, so obvious.  It is very difficult to set aside biases.  People have an idea of where they want the chart to go and it blinds them as to where it is actually going.  One of the easiest ways to make a mistake is to confuse the 3rd and the 5th wave.  Even the best EWers struggle with it.

In order to try to counteract that, I just switched my brain into "I wish the market would go up" mode.  While looking at it from this perspective, the resulting model now seems obvious even if not confirmed yet.  I might very soon have to adopt it as my official model.  As you can see from below, it basically says that the 3rd wave of the full 5 wave sequence just ended.

If this is the case, the declining double top near red 3 will look very much line that following the completion of the A wave that lies in the middle of the chart.  The wave could stop at the lower rail or it could go back down the the level of the prior 4th.  The wave count on the way down will likely tell us which one it will be.  If the above model is what is playing out, red 4 should be a 3 wave a-b-c movement.  If this is the case then the January decline was wave A, the subsequent recovery was wave B.  Since C is not supposed to be shorter than A, this implies a pullback to at least 15200 and perhaps as low as 14500.   The 38.2 fib would be 15044 and the 50% fib would be 14555.  The extreme pullback would be the 61.8 at 14067.  14500 looks like a very nice target if the chart confirms that it is following this model.

During January of this year, the 1255 point pullback of the DJIA resulted in an 82% pop for TVIX.  The recent peak of the DJIA was 16500.  If the DJIA pulls back to 14500 then it will have lost 2k.  Simple (and perhaps simplistic) ratio math suggests that this would result in a target of TVIX of 15.5 (236% off the low of 6.60).  That's still more than 200% from Friday's close.  As before, I would not be surprised if the pullback was rapid in order to shake out the weak "buy the dip" hands and to pull in some more shorts for the 5th and final wave up (red 5) that would, in this unconfirmed model, finish off black C.

I have been modeling a pullback in any case and so I will just keep my eyes peeled to see if this looks like the model that is playing out.  If this model is followed, we get a sell off into mid year and then a summer rally followed by economic Armageddon starting in the dangerous market months of Oct or Sept.