A lot of smart people have tried to call the bottom on Wall Street this year. So far, they have all been wrong. Since Dow Jones rallied from 11,500 to 13,000 last May after falling off its’ all time high of 14,000, the market has gone south and registered a series of lows, each low more significant than the last.

Now that the Dow Jones breached the 10,000 levels and settled at 8,400, one senior executive at a top investment bank (speaking anonymously) recently observed that there was no ending in sight. Still, there is a silent minority who believe otherwise.

Close to bottom or not, let me count the waves at Dow Jones Index.

I start my Elliot Wave counts at the peak of October 2007 and we are possibly at wave (3) of a bigger Wave III this technically explains the steep decline we saw in recent week considering wave 3 is the strongest wave among the five waves. The bottom of Wave I and peak of wave (2) of III (around 11,800 +/-) are significant support turned resistance level (refer to below chart).

This level (11,800 +/-) was January 2000 historic peak and served as rebound support last March (bottom of Wave I) after the index dropped 18% from its’ 14,000 peak; when Dow Jones re-tested this level sometime June of this year it failed to holds consequently the index tumbled to lower low at 10,700. The market again re-tested this level two months ago only to confirm the role reversal of the trend line (from support to resistance); this level now serves as a very significant resistance level to future rallies.

Going back to our wave counts, it is extremely difficult to determine the bottom of Wave III; however, there are several features and characteristics of Elliot Waves combined with basic technical analysis that can serves as foot prints in the sand to help traders track the index potential future moves, to wit:

1.) Wave (2) of the bigger Wave III appeared to be sideways corrective wave, we can therefore anticipate that upcoming wave (4) of the bigger Wave III should be a sharp corrective wave (this is part of the Rule of Alternation);

2.) Next significant (key) trend line support of Dow Jones Index lies anywhere near 7,200 levels, this was the low of 2001 recession, likewise, we can therefore anticipate this level as potential bottom of Wave III;

So sit back and enjoy the waves.