Barron’s is at it again!
That venerable financial magazine – Barron’s – rarely lets you down by pointing stock market investors and traders (and spread betters) in the right direction (it’s just not theirs)! I don’t know how they do it – their timing is impeccable. It has been the sine qua non for students of the Magazine Cover Indicator for decades.
Remember their December cover I showed in a blog as the Dow was approaching the 20,000 level?
The subhead was: ‘The Trump rally should push the Dow past 20,000 any day now. Here’s why stocks look solid and there should be more gains ahead in 2017’, as I noted then.
And indeed, a few weeks later on 27 January. the Dow reached a high of 20,140. Success!
So with that rare correct prediction in the bag, I am sure the editorial board felt mightily emboldened to make an even more bullish forecast – after all, nothing exceeds like excess! Here is their latest cover:
Wow! That’s bold! So let’s get this straight – they forecast another 10,000 Dow points on top of the 2,500 gained since the night of November 8 when Mr Trump surprised us. In that three months, the Dow has managed a 15% increase. If the market keeps going at that same rate, the 30,000 level will be reached by mid – 2019 in 18 months.
I am sure even the most rabid bull would concede this rate of climb is unlikely to be maintained. After all, the bull run which started in March 2009 is already one of the longest in history. To tag on another 18 months would put it into truly uncharted territory with P/E ratios on a par with the insane and manic dotcom era values (where burn rates of funds determined share prices and actual earnings were shunned!).
With Mr Trump acting now as the Great Disruptor, hell bent on shaking up the liberal establishment (and the populations, mainly the young), is it likely we will not have at least a decent correction and/or an economic contraction?
Of course not! So will the latest Barron’s cover go down in history as the epitome of Trumpomania exhaustion?
The Dow has hit a major high at 20,140 in wave 3
Since the Trump win early November, the Dow has been tracing out a third wave which are always characterised by being long and strong. Whenever you see such a relentlessly powerful move over days on end, you always suspect it as a third wave. This could be either wave 3 of a five-wave impulsive pattern, or wave 3 of a C wave of an A-B-C correction.
Either way, after wave 3 comes the corrective wave 4 and then wave 5 in the same direction as wave 3. That makes forecasting market moves that much more confident.
Rather than Barron’s 30k forecast, I have another one – here is my best guess using the Wave Principle as guide:
From the major low in Feb 2015, I have these wave labels. Both second waves are regulation A-B-Cs (green bars) and the rally off the purple wave 2 is very powerful and is purple wave 3 of red wave 3. This is perfectly normal for a third of a third wave. They take no prisoners. All shorts have been swept aside. And this wave started November 8.
And this third of third terminated on 27 January at the 20,140 level as the small red wave 5 was pout in. Note the huge momentum divergence there. That is a signal that the next downturn will be vicious and hard on the bulls. Look at a similar setup last year when the large mom div resulted in a break of 1,000 points to the Trump low in purple wave 2.
To add confidence in my assertion that wave 3 has topped, here is the hourly chart showing the five waves down off the 20.140 high
I have a very clear five down that looks very impulsive – and with a mom div to boot. That is my large purple wave 1 down of what should be a large five down stretching over several hundred points. Ideally, the budding A-B-C counter-trend move will be an A-B-C in wave 2 and then an almighty collapse in wave 3.
FLASH ALERT I took the above chart yesterday morning as the market was edging up toward the Fed non-news event last evening. The Dow fulfilled this forecast by hitting my target at 19,960 and straightaway heading lower in purple wave 3 down. This chart was included in my Trade Alert for VIP Traders Club members, of course.
What a stunning demonstration of the power (and accuracy) of the Fibonacci levels to forecast upcoming turning points.
