Will the Dow make 20,000

Will the Dow make 20,000


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On Friday, the Dow rally was in full swing and hit the much-ballyhoo’ed 20,000 level. Well, it almost did – the actual high was 19,999.8, a mere gnat’s crochet shy of the round number target that most were expecting.

Yes, big round numbers make great copy for pundits.  You rarely read Dow targets of 19,999.8 in headlines, do you?  No, the round number is what is imprinted in readers minds – and that makes it gospel.

But after that near-miss, the market fell away and as I write, is trading at around the 19,900 level.

Imagine the reaction of bullish traders who were counting on that 20,000 print in order to take their Trumpian profits.  Now, some will wait and keep their sell orders at or above the 20,000 level.  Others will see the writing on the wall and figure out that there may well be a whole army of traders waiting to hit the sell button the moment the 20,000 print flashes.  Those will take some money off the table at least.

But from an EW perspective, that near-miss was enough to count a small five wave rally complete.  And odds are growing that a decent period of decline is in store.

This is the current one-hour chart

I have excellent blue tramlines off the red wave 4 low on 2 January and the waves are highly overlapping, which is usually a sign the rally is about to run out of puff.

And from Friday’s high, I can count a purple EW pattern with the current dip being wave 3 down.  Yet to come is a wave 4 bounce and then a new low in wave 5.

If I see that on my screen in the next few hours, I will have a lot more confidence the 20,000 level will be safe for a while yet.

Of course, the purple waves down could be a simple A-B-C correction leading to even higher highs in the near term.  That is always a danger when we only have three nearly-complete waves to work with.

But there is little doubt that bullish sentiment is in dangerous extreme territory and a sell-off could easily develop into something much deeper.  But I need to have a little more evidence before I can make a confident forecast.

Has the dollar topped?

Was the question I posed last week.  So – has it?

Here is the EUR/USD cross as a proxy for the inverse dollar index

Last week, the euro made a low low for the move at the 103.40 level – but just admire the huge momentum divergence (not marked) – a clear give-away that the bear trend was running out of gas – unless fresh bears could be found to push the market lower.

And the pattern looks very much like an ending diagonal with clear wedge lines.

Could a new bunch of bears be found to drive the market into new lows – and closer to the much-anticipated parity?  The latest COT data should give me that information:

Indeed, the hedgies did add to bearish positions, but others matched them with a slightly larger number of longs.  That was a wash.  The small specs actually turned more bullish in a rare show of rational thinking at potential turning points.  It was the commercials who added to their short positions – but much of that activity could be genuine trade hedging.

But the situation remains unchanged – specs are short and the commercials are long.

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