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The Dow top at 19,000?


Mercury

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As  suggested, chasing the top of a market is a good way to blow your account but that doesn't mean we shouldn't project scenarios and prepare trading strategies should these scenarios reveal themselves to be right.  There is one that no one can analyse that is a rampant bull from here on the back of helicopter money and Fed drugs but let's not waste any time on that.

 

The charts below attempt to make sense of the current push to all time highs.  On the Weekly (a proxy for the daily to fit the tramlines in) the Green tramlines are interesting.  Very good reliability with many touches on both top and bottom trams.  A break of the lower tram followed by a touch back and then rebound back down, classic chartist set up.  And then a strong rally but where will it end?  The whole move down from May 2015 is in an A-B-C retrace from with 1-5 wave internals on the final wave C down to Feb 2016.  Since then we have seen a motive (1-5) wave with strong momentum.  So far it looks like 1-3 is done and now we have a retrace to wave 4 happening, probably quite shallow (I'd guess Fib 38% at this point but let's see).  After this we should get a turn back into the final wave 5 of 5 and this is where the lower tramline comes in.  Absent any other data point a touch on or near this line is a likely termination for the bull.  But you cant rely on it so we would need to see this turn and then a classic small 1-2 and turn down again to be confident.

 

Naturally a massive bull push on the back of helicopter money could see the market go all the way to the upper weekly (purple) tramline and even beyond.  For me that would not happen unless Q2 earnings were bad and if they are surely the game is up anyway?  That said who can say when the Fed and co will simply wake up and stop using the taxpayers credit card.  Bring on the Donald...!!!

 



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Slightly amended and I think more accurate and internally consistent version of the Dow charts in support of 19,000 ceiling for the Dow.  My daily chart tramlines (in green) are remarkable in their fit but the time period is too long to show on a saved chart however the Weekly chart also shows a great fit set of tramlines.  On the Daily we do not yet have a good Neg Mom Div but a short drop this coming week to a small scale wave 4 retrace (probably to thee Fib 23% off the recent rally - around 18200) followed by a final rally would give us this signal.  IF we get such a signal on the Daily, with other indicators supporting and consistent across all relevant time frames (Weekly, Daily, 4 hourly and hourly) and consistent on all other relevant stock indices and in the turn zone of 19,000 then that would be a high likelihood market top turning point.

 

With regards to other indices (in particular the Dax and FTSE100) the move described above would not, in my opinion, be sufficient to drive them to fresh all time highs and therefore we would be looking for a retrace on these markets and also on the Nikkei.  As discussed in a separate thread with , calling a retrace is much easier than calling an all time high top.  One of the key messages from the pod cast interview with Anthony Crudele that resonated strongly with me was the idea of not just looking at one market in isolation but seeking similar turning points across a number of related markets (note not similar patterns, i.e. a Top and a retrace on separate markets is just fine).  Therefore calling a retrace on FTSE100 and Dax could help call the top of the US large Caps if coincidental.

 

My approach will be to track the large cap US markets using the Dow as the main pathfinder into the 19,000 area (+/-) and look for concurrence retrace ends across Dax, FTSE100 and Nikkei.  It is a little harder to tell with the Russell2000 and the Nasdaq as to whether they will retrace or make fresh all time highs but given that on this current rally 1000 Dow points is roughly equivalent to 80 Russell points a top at 19000 would not result in a fresh all time high for the Russell (or if it does it will be marginal, an effective double top).  However when the Dow does tops out we should see either a similar top or a retrace turn on these 2 markets as well.  Currently all the US markets are in the grips of a similar 1-5 wave up.  In fact all of the markets are but there isn't enough momentum on the non US markets to put in fresh all time highs unless the US markets blast through the 19,000 Dow level and make an astonishingly Bullish run up to 21-22,000.

 

Does anyone have a different forecast for the top or a completely different view?

 



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