The Dow is following my roadmap beautifully
On March 1, the Dow made its all-time high at 21,170 and then started a decline which was when I labeled that high as the long-awaited long and strong wave 3 top. My forecast then in early March was that the ensuing wave 4 down would be complex, probably in the form of a 5-wave wedge or triangle. And when this pattern was complete, there would be a surge up to new all-time highs in the final wave 5 that would top out later this year.
Then, a devastating bear market would start in earnest – The Big One.
And so far, this forecast is panning out beautifully. As for my trading stance, I was willing to try and ride some of the five waves within wave 4 because I reckoned that these waves could provide moves of several hundred pips – well worth grabbing provided I could be very nimble. And that too has materialised with the Thurs/Fri rally of 400 pips.
So here is the daily chart showing the progress of the waves within the wedge
Note that waves a,b and c are threes and that I can draw excellent contracting wedge lines in blue. That gives me targets for waves d and e to appear in the next few days. Remember, wedges are like coils of a spring being would tighter – when it breaks, the moves are usually explosive.
The latest wave c bounced off the Fibonacci 78% support (marked in yellow) and the bounce was very strong and took yesterday’s high right to the Fibonacci 62% retrace of wave c. It is a curious fact that very often, the height of the various waves within a wedge bear a Fibonacci relationship to the previous one.
As a source of some entertainment to me, I note that the MSM ascribed the early-week slide of 500 pips to anxiety about Trump’s imminent impeachment and the ‘revelations’ about Russian involvement. But yesterday, that was all forgotten and they could find no plausible explanation for the 400 point rally! That’s rare. There are plenty of unused stories sitting in their filing cabinet, surely.
There is no intellectual honesty in this kind of coverage. If stories about Trump are driving the market down, they must also explain when markets rally using the same basis. This they fail to do – as do all news-based tales. It is part of the utterly false belief that the news moves the markets – that bullish news makes stocks go higher and vice versa. I would say 99.999% of investors/traders follow this paradigm. It is based on the cart-before-the-horse belief that rising stocks produces positive sentiment.
But it all seems so obvious – if your stock portfolio is gaining value day by day, you will feel better, surely. That is true, but when everybody is feeling bullish, experience tells us that is when markets turn. Market price movements are exercises in the counter-intuitive. Just as when Trump announced his candidacy, the vast majority were totally disbelieving he would get anywhere. That’s what a linear projection by the vast majority of the past produces – a counter-intuitive result.
The bookies were offering vast odds against – and the contrarians won big. But of course, these erroneous results using their conventional analysis methods do not make the majority stop and think that maybe they have things backwards! They just keep on analysing economic data, noting which guru said what, and which star money manager bought or sold which share. Despite the poor results (or at least, poor timing), most carry on as before.
But even a cursory glance at the market and the news flow will reveal glaring mis-matches, as we saw last week.
No, rising stocks is a product of rising overall positive sentiment that is patterned according to the Elliott wave model (in a five/three sequence). My correct forecast for the market in early March was made possible by the application of this model. This is the only system of analysis that can offer highly reliable price (and time) forecasts.
I’ll say it again -MSM stories about what has just happened are pure rationalisations that have zero predictive value. If we are in this wonderful world of trading the financial markets to make money, rather than for the thrills (as are pure gamblers), we need a method that can predict where markets are likely to go.
I am not saying that the Elliott wave model can predict every twist and turn all of the time – far from it. And that is why I incorporate Fibonacci and Tramline concepts into my own system and that gives me an even greater edge most of the time. As a practical matter, if I cannot make a confident analysis of a chart based on these three pillars, I usually look elsewhere until the fog clears.
But the Dow chart is giving me great confirmations so I will continue along this path. Of course, if the market declines below the a wave low at 20,400, that would change the picture substantially.
Interestingly, the latest COT data to last Tuesday shows the hedge funds increasing their short positions while the ‘smart money’ commercials increasing their longs. This was a week when the market dropped sharply. As usual, the hedgies rode the short-term bear trend down because they are trend-followers, not turn-pickers. Perhaps the commercials were reading the Elliott waves and gearing up for that final wave 5 into new highs.
When we are in wave 5 up. I forecast the commercials will add to their shorts and the hedgies and small traders will be selling out like crazy.
The Dow hit my 1.30 target in GBP/USD
For several weeks I had a target at 1.30 in the relief rally off the October Flash Crash 1.18 low – and so far, the seven month rally to the 1.30 level has been weak (only 12 cents in seven months)
But that didn’t stop me riding the recovery to my 1.30 target! Why did I place my target there? Simply because that is where the upper tramline meets the Fibonacci 23% retrace. So, a nice four cent profit in five weeks.
But is there more upside? If my labels are correct, we are at or near the end of wave 4 and therefore, the next major move is down in wave 5.
I shall be watching like a hawk for signs of a turn down.
If you are not a member of my VIP TRADERS CLUB, you may have missed these fabulous moves. But my members didn’t. I gave them clear instructions early Wednesday when I sent out my Trade Alerts. But there is plenty more to come, and so I invite you to join us for some very exciting rides this summer. Details how to join here.