Dear Friends,
I rarely write Technical Analysis Outlooks nowadays as I am concentrating on improving my trading skills. However, since I have written this Dow Outlook 090824 for a friend, I have decided to share it on my blog.
Let's look at the facts first. The Weekly Dow Chart shows that we are now in the process of either Wave 3 or Wave C. There was a Downward Correction in the Current Uptrend during mid June to early July 2009, which served as Wave 2 or Wave B.
What is the difference between Wave 3 and Wave C? At this stage, although we believe that the current upturn is a Bear Market Rally, we do not know for sure whether this will be a 5 Wave Bear Market Rally or a 3 Wave Bear Market Rally.
If it is a 3 Wave Bear Market Rally, then it is a Wave C, which should end very soon, and resume its Primary Downtrend. On the other hand, if it is a 5 Wave Bear Market Rally, then it is a Wave 3, which, after another downward correction, will resume its upward movement.
My best guess is that it is a 5 Wave Bear Market Rally, since this is THE Big Wave. Why? This is based on my observation of Monthly Chart.
From my studies of 80 years of Dow movements, the current price behavior suggests that the most likely scenario is an eventual movement up to the SMA50 Region, i.e. the Blue Line.
The Dow is not likely to breach this Monthly SMA50 level, which currently stands at 11,217. You will note that the SMA50 is dipping downwards, and thus, by the time the Dow approaches this line, the new SMA50 level should be around 11,000.
Given that quite a number of Technical Traders know about this phenomenon, I expect some to act BEFORE it really arrives at the line itself, and thus, my Medium Term Outlook is that the Dow will reach a Forecasted Peak of somewhere between 10,500 to 11,000, which will serve as the end of this Bear Market Rally.
Please note that when we deal with Probabilities, there is no certainty that the Forecast will happen. There is only a higher probability that it will happen. Thus, we can still be wrong, although when the probabilities are in our favor, we have a higher chance of being right than wrong. That is all we can ask for, with Technical Analysis.
Whilst my Medium Term Outlook of 3 Weeks to 3 Months is bullish, my Long Term Outlook of 3 Months to a year remains extremely bearish, and I would reiterate that I expect the Dow to break below 6,000 in time to come. This is because the current Bear Market Rally is Market Sentiment driven based on the Market Untruth that an economic recovery is under way, whilst the truth is that there is much more pain to come in the next one year.
What is really interesting today, is the Daily Chart.
I had expected the Downward Correction which started in mid June 2009 till early July 2009, to last longer, and that the Dow was not likely to breach the June High by much.
However, I was wrong, and the Dow has since moved far away from the June 2009 Market High. In light of the new information, it would seem that Wave 3 or Wave C is very much under way. If this is the case, then, there should not be any downturn to below the Wave 1 / Wave A June High any time soon. This is because both Wave 3 and Wave C are 5 wave movements, and Wave 3 is usually the longest wave, as is usually Wave C.
If the Elliott Wave Theory explained above holds true, then, this current upward movement must run for a longer duration and further than the earlier Wave 1 / Wave A.
Since the first wave moved from 6,500 to 9,000, i.e. 2,500 points, we can expect the current wave to move up by at least a similar amount, i.e. from 8,100 to at least 10,600, before ending. Of course, the Dow will not go up in a straight line, but will bob up and down in between.
As for the duration of the current movement, we cannot expect it to take as long a time as was done in the first wave. The first wave took around 3 to 3.5 months, before experiencing a 1 to 1.5 months correction.
Here, the current wave movement could be over sometime between 2 to 3 months, i.e. sometime between September and October 2009, possibly depending on how fast it gets to the targeted 10,500 to 11,000 region.
I rarely write Technical Analysis Outlooks nowadays as I am concentrating on improving my trading skills. However, since I have written this Dow Outlook 090824 for a friend, I have decided to share it on my blog.
Let's look at the facts first. The Weekly Dow Chart shows that we are now in the process of either Wave 3 or Wave C. There was a Downward Correction in the Current Uptrend during mid June to early July 2009, which served as Wave 2 or Wave B.
What is the difference between Wave 3 and Wave C? At this stage, although we believe that the current upturn is a Bear Market Rally, we do not know for sure whether this will be a 5 Wave Bear Market Rally or a 3 Wave Bear Market Rally.
If it is a 3 Wave Bear Market Rally, then it is a Wave C, which should end very soon, and resume its Primary Downtrend. On the other hand, if it is a 5 Wave Bear Market Rally, then it is a Wave 3, which, after another downward correction, will resume its upward movement.
My best guess is that it is a 5 Wave Bear Market Rally, since this is THE Big Wave. Why? This is based on my observation of Monthly Chart.
From my studies of 80 years of Dow movements, the current price behavior suggests that the most likely scenario is an eventual movement up to the SMA50 Region, i.e. the Blue Line.
The Dow is not likely to breach this Monthly SMA50 level, which currently stands at 11,217. You will note that the SMA50 is dipping downwards, and thus, by the time the Dow approaches this line, the new SMA50 level should be around 11,000.
Given that quite a number of Technical Traders know about this phenomenon, I expect some to act BEFORE it really arrives at the line itself, and thus, my Medium Term Outlook is that the Dow will reach a Forecasted Peak of somewhere between 10,500 to 11,000, which will serve as the end of this Bear Market Rally.
Please note that when we deal with Probabilities, there is no certainty that the Forecast will happen. There is only a higher probability that it will happen. Thus, we can still be wrong, although when the probabilities are in our favor, we have a higher chance of being right than wrong. That is all we can ask for, with Technical Analysis.
Whilst my Medium Term Outlook of 3 Weeks to 3 Months is bullish, my Long Term Outlook of 3 Months to a year remains extremely bearish, and I would reiterate that I expect the Dow to break below 6,000 in time to come. This is because the current Bear Market Rally is Market Sentiment driven based on the Market Untruth that an economic recovery is under way, whilst the truth is that there is much more pain to come in the next one year.
What is really interesting today, is the Daily Chart.
I had expected the Downward Correction which started in mid June 2009 till early July 2009, to last longer, and that the Dow was not likely to breach the June High by much.
However, I was wrong, and the Dow has since moved far away from the June 2009 Market High. In light of the new information, it would seem that Wave 3 or Wave C is very much under way. If this is the case, then, there should not be any downturn to below the Wave 1 / Wave A June High any time soon. This is because both Wave 3 and Wave C are 5 wave movements, and Wave 3 is usually the longest wave, as is usually Wave C.
If the Elliott Wave Theory explained above holds true, then, this current upward movement must run for a longer duration and further than the earlier Wave 1 / Wave A.
Since the first wave moved from 6,500 to 9,000, i.e. 2,500 points, we can expect the current wave to move up by at least a similar amount, i.e. from 8,100 to at least 10,600, before ending. Of course, the Dow will not go up in a straight line, but will bob up and down in between.
As for the duration of the current movement, we cannot expect it to take as long a time as was done in the first wave. The first wave took around 3 to 3.5 months, before experiencing a 1 to 1.5 months correction.
Here, the current wave movement could be over sometime between 2 to 3 months, i.e. sometime between September and October 2009, possibly depending on how fast it gets to the targeted 10,500 to 11,000 region.
As usual, I wish you success and many profitable trades.
Please be reminded on the Liability Exclusion Clause, which is at the top of my blog page, i.e. that the final trading decision is yours, and I will not be responsible or liable for any losses you may incur from whatsoever reason. :)
Best wishes,
Ooi
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