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Dow: If my target numbers of 27500 and/or 27650 area correct (they might be pie in the sky of course) then we have to look for wave 3 to peak and then a 4th and eventually a 5th wave.
It would make logical sense for the peak of the 3rd wave to be in the area 0.764 towards the top target area which gives a 3rd wave target area of 26850/26950.
And then a reaction back down to the 0.618 might materialise for wave 4, around 26400/26500.
The Dow hit 26800 last night so it is only 50 points shy of the lower 26850 W3 target and 150 points below the upper 26950 W3 target.
It would make sense to watch for a ‘pop and drop’ into the 26850/26950 area followed by a 4th wave drop to around 26430/26520.
Of course last night’s near touch of 26800 is very close and might mark the top of W3.
Here’s the Bradley chart for 2019. Interestingly the next peak occurs at the end of July, almost to the exact day of the next Fed meeting on July 31st.
It might be a case of ‘better to travel than to arrive’.
Clearly if DJI and SPX are at or near my targets at the end of July that will be a signal for serious consideration.
However these Bradley charts are often complete nonsense. I’ve followed them for many years and I’ll guess the success rate to be 50% or less. Sometimes they are surprisingly accurate, and might be on this occasion. Who knows…
I’m not interested in taking any positions at the moment. However *IF* the Dow and SPX are at my target prices AND that coincides with July 31st, then it will likely be time to may a short play.
DJT: In Dow Theory, any new highs in the Industrials Indices (Dow, SPX) must be confirmed by the Dow Transportation Index in order to indicate a healthy economy.
If the DJT fails to confirm new highs in DJI and SPX then that is considered divergence failure and a warning that ‘something is not right’.
So here’s the current DJT Index chart. Notice that DJT is still trading 10% below the peak whilst DJI and SPX and close to achieving new highs. This 9%/10% difference between DJT and the others is considered a significant warning under Dow Theory.
Of course the transports index is a different beast compared to when Charles Dow published his theories. But still, perhaps it is still relevant, in which case this is a clear signal of ‘sell or get ready to sell’ DJI and SPX.
Note that the next Fed meeting isn’t until July 31st. So if they make noises today but don’t actually do anything, the market might stall but then start to anticipate better news at the end of July. That time period would be enough for the Dow to form some sort of lazy 4th and 5th waves upwards to the target box.
Otherwise something else is happening.
Update of my Dow chart: In my original chart showing 27500 as a possible target I imagined that the route would be some sort of rising wedge thing. Of course that’s not happening because the latest sharp rise is clearly NOT a three wave sloppy affair but a bullish five wave thing. And looking at the overall picture from the low, the sharp ‘straight up’ nature of the rise also clearly smacks of a five wave structure.
When five wave structures don’t fit logical Fib ratios it’s often the case that the final 5th wave is shortened to 0.382 of waves 1-3 or slightly extended to 0.618 of 1-3. It’s possible that what we are now seeing is a final 5th.
0.618 of 1-3 added to 4 gives a target of 27650, very near to the original 27500 target (and might be due to rounding errors).
I’m not completely convinced and certainly won’t be betting money on this idea, but here’s the chart for information.
If we DO get to 27500/27650 then clearly some important decisions will have to be taken.
The economist and strategist Martin Armstrong has been saying for years that the next financial crisis will be created by an ultra strong Dollar. Apparently many emerging economies have lots of Dollar debt, and as the Dollar goes upwards they have to pay more and more until they reach default. Then a cascade of selling starts as they become desperate to sell anything to repay, so just like the Russian crisis in 1997/8 the problem cascades over into mainstream markets as massive selling hits them. And hedge funds etc get redemptions so they have to raise liquidity – there’s no market for distressed debt so they also have to sell their mainstream investments just to satisfy cash levels.
In the DXY chart long term I see a completed ABC three wave pattern from the lows years ago. Then a possible expanded flat B wave. Now it’s entered wave C upwards which appears to have started with a small five wave advance making wave 1 of C. If so, we should shortly see wave 2 down to perhaps the 94 area after which if the projection is correct the Dollar should start rising with gusto in wave 3 of C.
Yesterday German Government 10 year Bund yields dropped to an historic low of – 0.29%. Yes, that’s negative 0.29%.
Despite this, Draghi is indicating another cut in interest rates and possibly also starting QE again.
It seems that whatever they do nothing is able to prompt spending, investment and inflation. And the Banks are being crucified, along with retirement savers.
In the States the 10 year yields 2.1%. Perhaps this is why the USD has been so strong (and might get even stronger if it is just completing Wave 1 of a five wave C upwards).
USD Index: despite all the fun and games the Dollar Index hasn’t yet broken down from the long ascending wedge pattern. It isn’t clear whether it wants another try at the upper line (likely) or if the pattern has completed and the rally of the last few days is just a retest (less likely).
It seems probable that at some point the Dollar will break downwards and once the lower trendline is broken and retested the area around 94 comes into play as a target.
Two points of interest: 1) it sure looks like a very bullish five wave pattern up from the lows 2) amazing how the 200 day MA has acted as exact support recently (blue line). Clearly that MA will get tested at some point again, and having bounced from it three times the day it breaks will likely signal the correction downwards is underway.
But until then the Dollar is trending gently upwards (until it doesn’t).
Spare a thought for the Italians (and Spanish) who must be watching BREXIT very closely indeed. Luckily for the UK all the strain has been taken by the Pound, sending FTSE skywards.
The poor old Italians though are strapped to the Euro, watching their economy and banking industry gradually get destroyed. Italy used to devalue the Lira regularly to remain competitive and they did okay albeit with a constantly declining currency.
Now they are completely trapped and sucking up like puppy dogs to their ‘masters’ in Brussels and the ECB.
If I was Italy, Spain or Greece I’d be watching closely, not prepared to do or say anything, but see how Brexit goes after a year or so.
Here’s the FTSE MIB chart – not for the squeamish.
FTSE: I don’t understand FTSE. It never seems to conform to my expectations, always seems to do the ‘other thing’ and I’ve overall just had a very frustrating time with it. Haven’t looked at it in years.
However I did have a look today and prepared the attached chart.
Given Brexit, trade worries, political change etc etc (and the pretty awful UK economy and Government Debt situation, one might reasonably expect FTSE to be much lower. But NO! It screams to new all time highs!
The reason of course is the currency. If I remember correctly about 70% to 80% of FTSE earnings come from overseas, so the more the Pound falls the more translated earnings go upwards and hence the new market highs.
I wonder if FTSE is rising in a wedge thing. In other words the opposite of what’s happening in currencies. Both the GBPEUR and GBPUSD charts suggest more downside for the Pound in falling wedge form, and here the FTSE chart seems to be the inverse picture.
So it looks like the lower the Pound goes, the higher FTSE!
I blieve in classical technical analysis, when a market breaks out of a triangle a realistic expectation is a move upwards equal to the base of the triangle. In FTSE’s case that would equate to a target of about 8600.
I’d like to see the markets come down a little to form a B wave, and then start rising again looking forward to the July Fed meeting…
I’m not brave enough to have any positions open except a hedge in the currency market.
I should think most people are just sitting on their hands waiting. These things often see a lot of whipsaw – it shoots up, then plunges down, or vice versa. The first move might not be the right one.
GBPUSD: the Pound continues to drop against USD.
Chart attached. I’m measuring it as the start of a five wave decline, in which case it should get to about the 1.22 area. However the five wave pattern isn’t convincing, and the action could instead be part of a larger sideways flat or triangle formation.
I think somehow GBP wants to test the historic low in the 1.03/4 area, but whether it will get there via quite a fast five wave drop thing or a slower ABC remains to be seen.
