dow jones outlook from mathias o thanks culmus
Dow Jones Outlook 2007
This was posted in two parts, therefore the numbering of the charts differs from the original.
1. Review of the past yearly outlook 2006
The first quarter was supposed to be friendly. Until spring the completion of an upwave was scheduled, which was to end at 11.000 or 11.400+ points. For the second and third quarters the outlook was negative, as a medium-term downside correction was to develop. The downside target was at 10.000, or in case of an extension 9.400 points. The fourth quarter was expected friendly again, so that in total a very mixed yearly performance was derived.
The yearly outlook only was met partly. In spring there was an intermediate high in the 11.600 points area. A bigger downwave followed. Contrary to the favoured scenario this downmove didn’t take until autumn. Already in the 10.600 points area the yearly low was marked. Since that low in July a dynamic bull wave was built, so that meanwhile prices up to 12.500 points were reached.
It has to be summed up that the performance of the second half of the year did not resemble the original yearly prognosis. Especially the long-term low expected by the end of October was not reached.
2. Long-term cyclical situation
Due to the length of how these cycles are calculated, that explanation is skipped here and only the result is presented.
The results of the past cycle analyses were as follows:
Jan 2004 top (13.7 months)
Aug 2004 low (13.7 months)
4th quarter 2004 top (4 years, 13.7 months)
Mar 2005 top (13.7 months)
Mar 2006 low (Brenner)
4th quarter 2006 low (4 years, 13.7 months, Brenner)
Mar 2007 low (13.7 months)
2008 low
2010 top (Brenner)
Review: The conclusion for 2006 was as follows
- barely possible conclusions about the market actions during the year
- intermediate low in spring (Mar/Apr)
- a long-term meaningful low in October/November
- a year-end rally after the autumn low
- long-term from 2007 – 2010 the bulls are in advantage
Contrary to past years the decisive point of forecasting the cycles was not right this past year. The main forecast was for a medium- or long-term low during autumn. Instead there was a rally since July.
Outlook for 2007
The main question is whether the long-term low derived from several cycles is about to be skipped or whether it will only materialize later. Historically there were only few cases where such a contrarian performance (bull move instead of a low) occurred. More frequent was the development of an extreme one or two quarters late. For such a late occurrence speaks the significance of the low, which is in the same league as the lows during 1998 and 2003. Against such a late occurrence speak the short-term cycles which don’t have such a long time window and which tend to be bullish from spring 2007 onwards.
Concerning the long-term Brenner cycles there are no new cycle dates until the end of 2010. Only in about 4 years a long-term top is on the agenda, so that until then an uptrend is possible in principle. Also the shorter-term cycles in the medium-term aren’t exactly bearish. Only early 2008 a new low is scheduled, albeit just a medium-term low. As the overriding 4 year cycle is principally bullish until the end of 2008 and the 13.7 months cycle also is friendly until summer 2007 the cyclical starting point for 2007 and later tends to be positive.
Presently that leads to the following cycle dates:
1st quarter 2007 low (pushed over from the 4th quarter 2006?)
Feb 2008 low (13.7 months)
4th quarter 2008 top (4 years, 13.7 months, Brenner)
Apr 2009 low (13.7 months)
2010 top (Brenner)
Obviously there are no significant cycle dates during 2007. With that just the over-ordinate trends remain, which until the end of 2008 and/or the end of 2010 tend to be bullish. There is a certain probability for the belated occurrence of the low of the fourth quarter 2006, even though that is just a guess and cannot be supported by solid reasoning.
Chart 1: Dow Jones 4 year cycles
wallstreet-online.de
Chart 2: Dow Jones 13.7 months cycles
wallstreet-online.de
Chart 3: Dow Jones Brenner cycles
wallstreet-online.de
3. Long-term chart technicals
As always chart technicals have to distinguish between the two big time perspectives as these can point into significantly different directions.
a) Long-term megatrend
This refers to the long-term big trend since more than 100 years. It is no secret that there is a huge bull wave since almost 80 years, whose end cannot be seen yet. When using Elliottwaves there cannot be a serious and exact prognosis, however, a rough quantification how far the Dow can still rise is possible.
Wave technically the rise since the end of the Seventies is counted as big impulse wave (V). The main thrust wave III of (V) was concluded with the top during 2000. Therefore long-term another bull wave V is required, before a mega-top can be discussed.
Chart 4: Long-term monthly Dow Jones chart
wallstreet-online.de
b) Long-term trend
In principle two scenarios are possible: Over the coming 6 – 10 years the Dow will fluctuate sideways between 8.000 and 14.000 points while developing correction wave IV. This scenario of a long-term sideways phase was favoured so far, though in a somewhat shorter variation. It can still be realized, however, the Dow would have to turn down this coming year and over the following 36 months reach prices of under 10.000 points.
The second scenario is a current wave V already in progress. Though there will be interruptions, these will only be of temporary nature. Here in principle the trend would point up until 2010. As a price target of this big bull move around 17.000 points, with high trend dynamics even 21.000 points, are realistic.
A support of this bullish scenario for the Dow is given, when instead of the price development, the inflation-adjusted performance is analysed. Here the long-term Dow, adjusted by the CPI:
Chart 5: Dow Jones (inflation-adjusted, CPI)
wallstreet-online.de
In this chart a running impulse wave since 1982 is readily visible. It is very obvious that the top of early 2000 marked the endpoint of the main thrust wave III. With that it is clear: 5 – 10 years out there is another bull wave. The calculated price target is around 2.100, equalling around 17.000 points for the real Dow, without taking into account an additional 10-20% of “inflation gains”.
For the inflation-adjusted Dow the price development of the past years tends to be bullish, so that a wave V already in progress is likely. This implies further gains for the coming years. For a main thrust wave /3/ of V gains to around 1.843 are likely, representing around 14.980 points for the real Dow.
The technical alternative is – and here is no difference to the real Dow – a multi-year wave IV, so that early 2007 there starts a significant down move. The correction target of wave C of IV is 1.072 points, resp. 8.800 points for the real Dow. Of course short-term short signals are absolutely required to activate this scenario.
4. Medium-term chart technicals
The just mentioned alternative scenario so far and for the scenario of this past year was favoured. This can well be visualized when looking at the unchanged prognosis of early 2002:
Chart 6: Dow Jones (prognosis of early 2002, unchanged)
wallstreet-online.de
Here the blue scenario was supposed to come to fruition, where the amplitude of the down move was less important than the trend direction. However, the very high trend dynamics since summer speak a different language. Contrary to the price development since spring 2004 there were no more partial waves, but firstly there were clear impulse structures again.
The scenario of a wave /B/ of IV is still possible, but only as overshooting running flat. For that the Dow would have to turn down latest by February and quickly drop to below 11.600 points. Only after that break a medium-term downside potential to 10.800 and later 9.500 points gets activated.
Chart technically the opposing conclusion has to be considered as well: above 11.600 points the bulls are clearly in charge, not the least because of the clear impulse structure. Though also here there should be a meaningful downside correction latest by the second quarter, but the support at 11.500/11.600 points is defended.
Chart 7: Daily Dow chart
wallstreet-online.de
Above chart now shows the wave structure of the past 6 and 12 months. It quickly stands out that it is an upward impulse. This most likely will be concluded during the first quarter. In principle this is not a bad starting point for a friendly price development, the more so as until the end of 2008 and/or until 2011 the cyclical situation is basically bullish.
The following chart shows the two scenarios basically discussed in point 4:
Chart 8: Yearly prognosis 2007 for the Dow Jones
wallstreet-online.de
Though early in the year it should go upwards a little more, latest by early March a lasting top should develop. In the ensuing 4-6 months moderate losses are scheduled. The correction target is around 11.900 points. Judged from the current point that should mark a loadable low, so that the Dow looks up again during the second half of the year. New tops are likely by year end at the earliest.
Should there be no bottoming process around 11.900, the support at 11.600 points takes centre stage. If that support does not hold, the alternative scenario shown in red in the chart gets activated.
To conclude, the chart- and wave technicals are constructive for 2007. As long as the Dow stays above 11.600 points, the trend points up. It has to be realized, however, that especially during the second quarter a bigger correction wave develops. Ideally the yearly top is built during January/February. |
