It is common for each wave of buying and selling past the initial high in this type of pattern to have two to three smaller waves within them. Two is the most common when in a trading range, however, and the Dow just completed its second wave off 2009 lows heading into summer of this year. Since the pace of the selloff from July into August was once again stronger-than-average, we should again expect the market to have a difficult time recovering and pushing through the 2011 highs, making it even more unlikely for the 2007 highs to be breeched over the next several years.
Dow Jones Industrial Average (Figure 2)
It typically takes two larger waves of buying and two waves of selling for the market to break free of the type of trading range we are experiencing now on a monthly time frame in the Dow. When I first offered my "10-year prediction" it was based upon the assumption that this would be the case for a "best case scenario" and that the subsequent moves after a selloff such as in 2007-2008 will usually be more gradual than the first selloff itself was. As a result, I wanted to take into account the approximate time it would take to accomplish this type of pattern development.
There is still a lot of time left for the market to continue on its path of recovery and there is still a lot of time for the current price action to change. This includes change to a more pessimistic view point. While it is certainly probable that it can take another 6+ years for this action to develop to a point where the market can safely break to new highs without failure, it may still not do so at that time. Instead, the momentum of each of the subsequent moves on the upside can continue to slow, leaving the market stuck in a much longer term period of correction off that 2007 level. This is what happened on the daily scale after pulling off those same 2007 highs.