Dow reaches my 16,120 target
The ‘surprise’ deal with Iran over its nuclear programme gave the markets a boost yesterday. This was no surprise reaction. But is that it? Was that the final run on the upside, and have stock markets now become exhausted of buying power?
The Iran deal has plenty of caveats and could unravel later, but to me this outbreak of pally-pally cooperation between the West and one of the former components of the Axis of Evil is just another manifestation of the elevated bullish sentiment that has swept over the world.
It is what is responsible for valuing Twitter at $25 Billion with no profits.
As the best thermometer of social mood, the stock market’s new highs are confirming this extreme bullishness. Naturally, this positive state can continue for much longer. But we know that major tops are made when bullishness is extreme, so we should be looking for a top that come come at any time. The smart money is on a turn soon.
Interestingly, the crude oil market clawed back its huge losses by the close, and stocks have backed off from their Monday morning highs. So the question is: Is that it?
In my Weekly Wrap, I had an upside target for the Dow at 16,120, where w5 would equal w1. We are in w5 now. When it ends, that should signal the reversal. Here is the hourly chart of my w5:
The market rallied right to this level yesterday (twice), tried again this morning and is backing off, having broken my lower tramline. The rally here also has a five wave pattern, making the 16,120 level the end of fifth waves of two degrees.
This is significant. The market is evidently respecting the 16,120 level. To confirm the top, I would need to see a powerful move down in a third wave.
My analysis on gold in my Weekly Wrap was timely. It appears the plunge low on Monday morning in reaction to the Iran news was an exhaustion low. The recovery yesterday was significant.
If yesterday’s low holds, then that is wave B of an A-B-C counter-trend move of some size.
The first target is of course my upper tramline in the $1300 – $1310 area. And if that can be overcome, my next target is the most recent high in the $1430 area.
This could prove very interesting!
I am now long gold.