LunaticTrader

Investing with the Moon

Posts Tagged ‘long term’

Dow 32000 revisited

Posted by Danny on December 12, 2016

In August 2013 I posted an article with long term price projections for the Dow Industrials based on a remarkable price symmetry since the 1932 depression lows: The case for Dow 32000
The article called for a major peak near 32000 or 19410 by late 2016 or early 2017. So here we are in late 2016 and the Dow has just reached that minimum target of 19400 last week. This is the perfect time to update those projection charts and have a little look what could be up next.

In my article I mentioned 3 conditions that would need to be met for the Dow 32k scenario to remain in play. The market was just having a bit of a pullback after climbing above 15k for the first time, and there was plenty of talk that the top was in and the market would crash. This were the 3 conditions:

1) The current correction has to be shallow and cannot venture too far below 14000 before recovering.
2) The green overhead resistance line, connecting the 2000 and 2007 highs, will have to be overcome and left behind. That’s not going to be an easy feat. But with all the ongoing QE, who knows?
3) This breakout above 17000 would have to come by summer 2014.

The first condition was met easily as the pullback was short and shallow with a bottom near 14700 before climbing to new records in 2014 and 2015.
The third condition was also met as the Dow nicely climbed above 17000 in the summer of 2014.
But the second condition, leaving the green overhead resistance behind, did not pan out as can be seen in this chart:

djia-monthly-10_1984-12_2016

And that’s how we did not get to 32k, but we have reached the lower peak target of 19400. Does that mean the top is now in and we can bet on a crash? Well, not so quick. The possibility exists that the market is starting its final ascent and may reach the 30k-32k in an 8 to 12 month blow-off peak. We still don’t see massive investor euphoria and if the Dow climbs to the upper bound of its trend channel since the 2009 lows (dashed grey lines) then it could get there. The pink ellipse shows the projected target area in this scenario.

I will go to S&P 500 charts to study how such a final surge might play out. This is the current situation with major trend lines drawn in:

sp500-monthly-10_1999-12_2016

The S&P is clearing one of the last overhead hurdles near 2250 (green line) and if it decisively breaks through that level then the door will be open for a climb to the upper bound of its trend channel since 2009 (blue lines). In fact, neither the Brexit nor the US election fears pulled the market back to the lower trend long term trend line (blue), which supports the case for such a surge. The S&P is already following a steeper rate of advance (given by the dashed grey line) since early 2016. If it keeps this up for another 8 to 12 months the S&P will be in the 2600-3000 zone. This is the same rate of change it kept going for more than 3 years in 2012-14. If it keeps it up for another year then the S&P would be in the 3000-3200 area. Both target zones are shown with pink circles in the chart and appear doable.
This analysis helps us to see what it will take for this scenario to stay on the table. S&P will need to break above the green line quickly and then go on to 2500-2600 fairly soon, probably before summer 2017. Then a final autumn autumn moonshot could take it to near 3000, which would become an obvious attractor at some point.
We can also see what would invalidate this setup. Any decline below 2000 in 2017 would tell us the long term advance since 2009 has ended and that would definitely take the quick surge scenario off the table. Any sustained drop below the dashed grey line, currently near 2100, would already suggest this scenario is not making it. So, that are the lines in the sand that I am going to watch carefully.

If we do get a surge to 2600+ next year then it is likely to be followed by a steep decline in 2018-21. This is what would become my base scenario after such a blow-off peak:

sp500-monthly-9_2004-12_2016

Major long term support will be in the 1500-1700 area in the early 2020s, so that would become an important target if there is a crash or bear market.

What are the odds of this coming true? I think there is currently about 20% chance to get this kind of runaway market in 2017, and the odds would go to 40% if the S&P gets above 2300 quickly and keeps climbing in January – February.

***

Let’s finish with a look at the shorter term Nasdaq chart:

comp-daily-4_17_2015-12_9_2016

New records with the Nasdaq breaking above 5400 after earlier hesitation at that level. All indicators are pointing up with further room to rise. No signs of a peak. All we can do is go with the flow.

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Long term gold charts update

Posted by Danny on December 4, 2013

For earlier versions of these charts, see our June article.

Gold has dropped to $1215, one of the bottom targets we mention in our weekly key reversals posts. So, this is a good opportunity to update the long term charts.

Let’s start with the monthly chart (click for larger image):

gold monthly

Gold appears to be forming a base near $1200 on the monthly chart.
The Earl indicator is turning positive already. The slower Earl2 is close to bottoming out. Meanwhile the MoM has fallen into the blue zone, and it  hasn’t been this depressed since 1999. If gold can break above the thick green resistance line, then it will go on to trade in the area marked with a blue parallelogram next year. This means +20% upside potential.

The weekly chart shows a similar picture (click for larger image):

gold weekly

Here the Earl2 is improving already while the Earl is close to bottoming. We may get a bottom in December (tax selling?) or January, but as long as gold stays above the summer lows it won’t take much to force a breakout to the upside.

The daily chart for a more precise entry point (click for larger image):

gold daily

Shorter term we see a bullish divergence in the Earl indicator with the slower Earl2 ready to bottom out. Also here the MoM has dropped into the depressed blue zone, which is what you typically see before the start of a significant rally. Based on this chart a December bottom is more likely than a January low.

So, the weak hands have been shaken out (if not gone short), and the media continue to tell us that gold has only further to drop. But on three different timescales my indicators are saying: BUY.

My own guess: gold will see a rebound next year, possibly stretching into 2015, with a target ~1500. That will get a lot of investors very bullish again, forecasts of $3000 or $5000 gold will make their comeback, and then another leg down will start.
This is called: shearing the same sheep twice.

Of course, I could have it all wrong, as always.
If gold drops below $1150, then I will have to write off this scenario.

Good luck,
Danny

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The case for Dow 32000

Posted by Danny on August 30, 2013

If you look at a long term chart of the Dow Jones Industrials it is interesting to see how symmetrical the advance since the 1932 depression lows has been.
You could turn the chart upside down around a point in late 1974, and it would look almost exactly the same.
This chart lines out some of these symmetries (click for much larger image);

Dow symmetry

If this symmetry is to run its full course, then it asks for a major high in late 2016 or early 2017. Feasible?

If the symmetry continues then the price action since the year 2000 peak should resemble the price action of the first 17 years since 1932, but mirrored. In the next chart I have done that exercise (click for larger image):

mirror

Lining up the 1949 bottom (becomes a peak in the mirror image) with the early year 2000 high gives a good match. While there are obvious differences, we can see that most tops and bottoms line up well.
Overlaying it directly we can get this (click for larger image);

mirror 2

Here I have matched the 1949 mirror high to the 8000 level for the Dow, which puts the correction low at 6470, which was the actual low in 2009. That sets out an upside target of 31130 by the end of 2016.
By the way, I have always thought that 8000 would have been the natural high for the Dow in 2000, if it hadn’t been for easy Al’s monetary policies.

Long term trend lines that have been in play for decades are also showing a convergence around 32000 by late 2016 (click for larger image):

Dow targets

Zooming in on the potential price targets:

targets

The most optimistic target is just above 50000, not one I consider very realistic, unless we get hyperinflation.

The trend channel that started in 2009 is targeting 30000 by late 2016. This advance happens to be climbing at exactly the same rate as the 1994-2000 bull market. Can this be kept up for three more years?
A few conditions will need to be met for this very bullish scenario to remain in play:
1) The current correction has to be shallow and cannot venture too far below 14000 before recovering.
2) The green overhead resistance line, connecting the 2000 and 2007 highs, will have to be overcome and left behind. That’s not going to be an easy feat. But with all the ongoing QE, who knows?
3) This breakout above 17000 would have to come by summer 2014.

If we get a deeper correction to 12000 or something, or if the market fails to break above the green resistance line, then 19410 becomes a viable lower target to be reached in 2016.

In all these cases, a 2016 top would mean the end of this symmetric pattern, and may be followed by a 1930s style crash and depression. That would take the Dow all the way back down to 4000-5000 by 2020.

Let’s just see what happens.

Danny

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