Dow Yearly: I’ve struggled in the past to get a handle on the...

Dow Yearly:

I’ve struggled in the past to get a handle on the Elliott Wave position of the Dow Jones index. But if I look at the really big picture yearly, I’m surprised at how clear this looks.

If the 1932 low to 2007 high was a Wave 1, then the fall to the 2009 low completes Wave 2 at a normal 61.8% retracement. That sort of fits and makes sense.

It means we’re in a long term Wave 3 to take the Dow up to about Dow 25,000 or beyond. It also means 2015 paused at the 100% extension of Wave 1 -2 which is all a perfectly normal resistance point.

It’s pulled back 25% of the Wave 3 move so far. There no rules around that, but that could be it and it powers on up at a rate which would hit 25,000 in about 2022. If the Dow pulls back 38.2% in 2016 or 2017 to Dow 13,800 then that’s also within reasonable expectations and will power on up Wave 3 at just the slower rate shown, to get to 25,000 in about 2029.

If the Dow falls below the 38.2% level of 13,800 then it is a more serious bear market and my Wave count shown could be wrong. But Elliott wave works best on deeper liquid markets and should apply well to the DJI and the count shown fits really well.

Drill down to the Monthly and Weekly scale for 2016 and perhaps 2017 and it will feel bearish. But the bigger picture looks like just a minor pullback so far within a strong Wave 3 uptrend.

That has quite a lot of relevance for how to play the markets this year, as it shows the possibility that the retrace has already completed on the week of 28^th August 2015 at 25% and we’re in a bull market from here. It one possibility.

I’ve been assuming markets will pull back further and need more sideways time as they are so pumped up with liquidity that was being withdrawn by the US Fed. But if the Fed reverses course and goes to negative rates now to keep the liquidity pumping we might just keep going up.

This is an unfolding story, but worth keeping in mind as a possibility.