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DJI: the 27500/27650/27730 target areas for the Dow have me a little confused because they don’t have much of a Fib relationship to the preceding action. So I’ve looked again at the long term picture, and I’m rather shocked to discover that the long term potential ABC has a C=A target at exactly 27350. For some reason I had 30,000 in mind – where I got that from I’m not sure.
This 27350 target is clearly extremely important. It might also explain why the most recent rise looks more and more like a ‘five’.
This long term ABC is likely part of an even longer term rising wedge to finish off the bull market that started way back in 1906 or 1932.
Whatever, the C=A relationship at 27350 is clearly very important.
I’ll be looking again at the shorter term charts to see if the current pattern can work out nearer to that number.
DOW: I’ve updated my DOW chart, trying to look at the different options. The recent price action now looks like an impulsive ‘five’. It can be a ‘c’ wave of the current advance, or the entire recent advance can be a ‘five’. Difficult to tell – but it looks like a five to my eyes.
There are two nearby targets – 27500 or so as part of an expanded flat, or 27650/27730 which completes either a three or a five for the current move.
The RSI is high, which might negate the idea of a ‘three’.
I suspect the 27500 will be exceeded and thus invalidated. In which case the next target of 27650/27730 comes into play.
There are also higher targets around 28,200 and 29,000 but I find it difficult to see how the market can reach those areas with the current pattern, but those might be valid targets for next year after a correction sets up a different pattern.
On balance it looks like the 27650/27730 area is the most likely target towards the end of July.
SPX: I originally had targets of 3003 and 3040 for an SPX top. However the pattern has changed and it looks like going higher. I’m still thinking we will get some form of rising diagonal in these markets, and it might take longer (and higher) than many think.
Looking at the attached chart I’m suggesting an ABC advance in the current rally, with the most recent action being overlapping waves in ‘C’. If so the target is around 3060. The pattern is rather scrappy, but the green option seems the most likely.
Time will tell.
*If* 3060 is reached (and the pattern is correct) then SPX *MUST* fall back to overlap 2955 if the rising diagonal pattern is to be valid. So I’m looking for that 3060 target towards the end of July for a rather quick 105 points correction downwards.
DOW: here’s a six month chart where I’m trying to isolate the pattern of the latest rise. Based on my concept of this being a large rising wedge, this rise should be a ‘three’. It might be, but the pattern doesn’t look right (yet). It’s passed the point where c=0.618. Of course it might just reverse from here, but if not there are targets higher at 27320 and 27560. And, just to confuse matters, there’s a shorter term wedge target at 27150.
So it’s all a bit scrappy. Clearly it’s trying to head to my target peak box area 27500/27650, but the route is becoming occluded.
I don’t have a position and I’m content to sit back and see what develops.
It can go higher to around 27150, or it can stop suddenly where it is now.
Well, here we are at 27150…
DXY: the dollar is consolidating above the (invalidated) trendline, and is also perched back above the 200 MA which is still rising. Nothing here to give any clue as to future direction, and nothing to suggest what might happen to interest rates.
DOW: in this minute-by-minute chart for the past ten days you can see that the price action isn’t ‘impulsive’ but appears to be overlapping possibly as the culmination of a rising wedge as shown on the daily chart. It can go higher to around 27150, or it can stop suddenly where it is now.
I don’t have a view or a position but would rather wait to see what develops.
DOW: whilst the target box in the 27500/27650 area remains valid, I am a little concerned about the ‘shape’ of the route upwards. It is meant to be a five or a three but at the moment it is neither of those. This might mean that something else is happening, but as I’ve mentioned several times recently, the preferred choice is the formation of a rising wedge as shown on the attached chart. Clearly this is just a guess and anything can happen in these overblown markets. If the wedge is to be valid the Dow needs to drop down to the lower line from around these levels, otherwise something else is going on.
DOW: I’m looking closer at the possibility of a large rising wedge developing in the DJI. This is of course just a guess, but what’s interesting is that at the peak last week the most recent rally can be interpreted as a ‘three wave’ with wave ‘c’ of that being almost exactly 0.618 of wave ‘a’. If so, the market will now try to decline probably into the 25,000/26,000 area. If that happens it will of course then need a final rise into the target area of 27500/27650.
No guarantee any of this will happen, but worth watching for.
GBPEUR: the pound against the Euro looks the same as the dollar – an extreme long term falling wedge pattern. For the Euro the target is in the 0.92/0.96 area, or about 20% less than today. With the possible negative effects of Brexit that 20% or so decline feels about right (and is similar to the dollar). After a couple of years the pound should bottom and then become a strong buy.
GBP: pound long term looks like a large falling wedge with a target in the 1.00/1.10 area. Might take a year or two to get there, then the pound becomes a strong buy against the dollar. Patience needed.
GBP: the Pound continues to decline against the dollar, now resting on critical support at 1.25. I’m not sure of the shape of this decline – the long term chart suggests this should be a three, but at the moment it looks like a five with expanded 2nd wave. I’m not convinced either way, and I suspect the pound might bounce unexpectedly. Long term the pound looks awful.
Dollar: the dollar shot upwards through the broken trendline. I suspected it would, as I mentioned the other day – there were simply too many shorts waiting at that trendline. Now the trendline has been broken and is invalidated. Quite what will happen to the dollar after this break is uncertain. I suspect some sort of triangular sideways movement, but of course with the trendline broken anything can happen.
DOW: the DJI is approaching my target box at 27500/27650. How it will get there is another matter. I thought it would rise in a ‘five wave move’ and it might be doing that, but the shape doesn’t look right. The alternative is that this is some sort of rising wedge thing (see chart) that plunges then rises again into the box.
Timing is also awkward – I’ve been expecting the target box to be reached nearer to the end of July, but that might not be right.
All one can do is watch and wait – wait for the right opportunity when the boxes are reached and everything feels right for a short position.
1987: the Bradley chart for this year reminds me of 1987. Back in those days I was a junior fund manager in London running global equities. In early August we had a meeting with Crispin Odey (now a famous hedge fund manager, but in those days he ran the Barings European Growth Fund). Crispin warned us that he thought the markets were ‘topping and rolling over’ and he recommended that we take defensive action and raise cash wherever possible. During August and early September we did indeed raise cash, expecting lower prices and a buying opportunity. Naturally none of us expected the October 19 crash, but when it happened our funds shot to the top of their respective league tables simply because we had more cash than the competition. Of course we lost money, but we lost less than other funds.
Now I look at the markets and the Bradley chart and I’m thinking 1987. Not that I expect a crash, but the pattern of topping and rolling over during August is very similar, and after everyone returns to their dealing desks in September the selling starts and accelerates downwards.
I’ll be looking to take short positions if/when the Dow gets to my target box area of 27500/27650. August might be frustrating as the market just levitates in that area. But if 1987 comes to pass, September and October should see the Dow fall into my target area around 24,000.
Of course this might all be baloney. Time will tell.
