DJIA

More DJIA

Hamilton

djia aug 21 2012

A few more thoughts concerning the DOW. The top in 1999 would have seem quite appropriate considering the run up during the 10 or so years preceding it. However if you take the DOW Transports, the top is better placed in 2007. That leg up from 7000 to 14000 can, in my opinion, be counted just as easily as 3 waves or 5 waves. The dive back down in 08,09 is best counted as  3 waves but again it could also be viewed as 5. Consequently the entire structure from 1999 to the start of 2009 could be viewed as a completed correction, an irregular a-b-c. In fact this possibility was rejected by the Prechter people not on grounds related to the structure per se, but on other metrics such as sentiment etc. If that were the case the next leg up could be a wave 5 and should unfold in 5 separate waves. Again the leg up from the 2009 lows can be counted either way, as a 3 or a 5.  At 13000 it is already well above the peak of what would then have to be wave 3 at about 12000. The higher top in 2009 is irregular, so it does not count (I think).

Some would argue that the whole structure over the past 13 or so years is one single pattern,  see for instance Robert D. McHugh, who has dubbed this pattern the “jaws of death”. There is a guest part on his website that is freely available under;  https://www.technicalindicatorindex.com/subscribers/guest-articles/McHugh%27s%20Article%20Jaws%20of%20Death%20February%2017th%2C%202012.pdf

This particular pattern does not, to my knowledge, exist in the standard EW repertoire  even though similar results may be obtained by combining two separate pattern, as I have done with a wave 4, irregular a-b-c and a 5th wave. In more detail it looks like this;

djia jul 2012 sdjia aug 21 s 2012

On the left we still show the rise from the 2009 low as a B-wave. Which fits rather nicely given that the C and A legs are just about vector equal AND we are about to hit the trend line. The pattern over the past two years or so is a rising wedge that is pretty well text-book, including alternation. This wedge could be either a C or a 5th wave. The target is around 13600, which, at the present pace of roughly 400 points a month could be reached any time now but certainly no later than the end of September. In the mean time the NYSE is behaving according to script. This could, of course change;

nya aug 2012

DJIA , Gold GLD, and Oil WTI

Hamilton

djia may 2012

This is a 5-year chart. No absolute amounts , just percentages. Black is the Dow Jones Industrial Average, down perhaps 10% over 5 years. Blue is gold by way of the GLD, up 130% over the same period. Then there is the yellow or brown line representing oil, down 45% from 5 years ago. None of this is the least bit interesting except that things are not supposed to happen this way. All three are directionally correlated quite well, unheard of in economics 101. When correlations move to 1, there is a problem ahead.

Russell 2000 index, DJIA

Hamilton

 

 

This is the Russell 2000 small cap index. It is a very broad index and as such it should probable “represent” the US economy the best, assuming of course that stocks actually represent anything at all. I have left the chart blank as it illustrates very well how the recovery rally from the March 2009 lows is, at least to date, clearly and unequivocally a 3-wave affair and therefore a correction. What is equally clear is that the correction did not stop (as expected) at 50/62% and instead, like the energy bunny just kept going and going and is now at the double top level. A count could look like this;

Rus apr 2011

In this count the actual top would have been in early 2008 from where the index started a huge “flat”, A-B-C where the A was the great recession, the B the even greater recovery and the C has yet to come , but most certainly promises to be the greatest disappointment as it should drop below the March 2009 lows. This interpretation assumes that the tech drop in 2000 is unrelated to the recent calamity.

A different count has been offered by another practitioner of EW as per the chart below;

RUT april 2011

In this particular approach the last 10+ years were spent tracing out a single pattern, variously called the “Jaws of death” a “megaphone” and other descriptive  names. The only pattern within the EW orthodox repertoire that remotely resembles this one , would be the expanding triangle wave 4. At a later stage concessions were made by some (Neely) to allow for an upward sloping lower boundary as in a running triangle. What argues against this is the clear B-wave, which is clearly NOT a 5th wave!. In any case the difference is academic for the next big move. In both cases we could, but do not need to, go higher to the upper trend-line at about 900 and then we should drop like a stone.

These , and two other counts are compressed in the chart of the DJIA below. With only one unlikely exception (if we are in a new bull market) every count points down even if there is a little room for more upside.

DJIA Apr 2011

DJIA Update

Hamilton

Before I give up on this, here is an update on the Dow Jones.

djia aug 2010

As the DAX may make a new high any moment, negating much of the bearish scenario, the DJIA is still OK. Previously I mentioned 10625 as the 61.8% retracement level, which would be correct (10627 to be exact) if the second low applied. However , if the second low is used the precise number is 10695, just 30 points or so from today’s highs. Going beyond that is always possible without necessarily negating the outlook, but it would certainly undermine any confidence.