After bouncing off of a major support level around 10,800 and rallying 900 points, we have seen 2 straight weeks of decline in the DOW. Selling on narrowly out paced buying this week, leaving us stuck between the 0% an 38% retracement. Considering the poor GDP and Unemployment numbers this week, the market held up pretty well.

Forecast

I think it’s entirely possible the DOW will retest the 38.2% retracement at 11724 next week, or at least come very close. If it breaks through this level, the next major resistance is the 50% retracement right at 12,000. If the 38.2% retracement holds, look for the bearish downtrend to continue, with the first “emotional” support comming a 11,000, and a much stronger support level at 10,800.

For the long term, if the 38.2% retracement holds, which I expect it will, the market is going to continue the downtrend. As Jordan over at investingblog.org stated, this market needs some kind of catalyst to push it higher. I couldn’t agree more, and in fact belive that if we dont’ see significant improvements in the value of the US Dollar and reductions in commodity prices, as well as stabilization in the housing the financial sectors, this market could breakout through support.

For you Elliot Wave traders out there, is it possible that we are currently in the 3rd wave of a (C) correction?I’m really bad with Elliot Wave, and would be shocked if I was even close to accurate here.

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