"The DOW at 400 as an extreme sport ...".

For almost as long as I can remember, Robert Prechter at Elliot Wave International, (EWI),  has been saying that the market is in for another crash and one that will be significantly more devastating than the last one in 2008. 

In a recent post, 18th January 2010, EWI published their forecast ,that the DOW will hit 400 by 2015. Yes that is right 400.  

The EWI chart looks to be a monthly projection and my reading of the chart seems a little different to EWI. However when I had a look at my own chart I could not get the same pattern. My analysis saw the DOW getting down to around 5500. Here are some of the thoughts that occur to me when I went over the chart:.

1. The Wave 4 that is in progress now has violated the upper Wave 4 channels and as Prechter points out in his book, if this happens then it is unlikely you will get a full wave 5 retracement.
2. The Profit Taking Index in GET is only 28, which less than the targeted 35. This would also indicate that there is a reasonable probability that there will not be a correct Wave 5 retracement along the lines in the EWI post.
3. Using the Ellipse study, it would indicate that the Wave 4 is still not over as the two ellipse have not converged. If this is the case we could see the current upward trend move higher for awhile yet. The implication is that any retracement from this higher end point would be also higher than the lows currently being projected
4. If we assume that the points above are correct, Prechter points out in his book that the retracement would be to the previous wave 3 low of 6440 rather than his projected 400.
5. Using the Ellipse tool on the previous Wave 4, this would seem to indicate that the end of a projected Wave 5 down would be somewhere between the current high of 10609 and the low of the previous wave 3 at 6440. 
6. If we assume that the above analysis is wrong and the current wave 4 dynamics hold true to the rules in prechter's book, then the targeted wave 3 low is around 5357 by November 2010 and not 400.
7. Again, if we assume that the current analysis is still wrong and we take a wider view and project a low from the previous wave 4 low back in October 2002, the projection only gets us around 5752 by November 2010 and nowhere near the 400 posted in the blog.
   

The interesting thing about this analysis is that many of the tests back each other up and give targets that seem to be close. Then again I could be wrong, but for all our sakes I hope not.

One other observation on the EWI chart is that they place the greatest reliance on the shape of the chart and inform us that price is approximate and the timescale for the chart is not reliable.

Cheers