Dow Industrials

Summarizing Our Dow Jones Forecast

Published 19th June 2018 & validated 14th August 2018

We see high odds that the Dow Jones Industrial Average will rally into another all-time high in 2018. The rally will probably carry the blue-chip index into the end of a medium-term cyclical trend, which started in 2010.

Short-Term Dow Jones Elliott Wave Analysis

Published 14th August 2018 

Our Dow Jones Elliott wave analysis from the 10th of August remains perfectly valid. Price action left an opening gap within the third wave to the downside during past week’s selloff. That’s another piece of evidence that prices are not done to the upside for now. Gaps tended to get closed historically most often.

However, the current correction is probably incomplete right now. Wave structure looks best with another drop before minuette wave (b) completes. It is still rather short with respect to time and price retracement. Nevertheless, the key takeaway remains that the DJIA is most likely within a correction that resolves to the upside sooner or later.

Another interesting observation is that all major US indices are showing different wave patterns as we publish this. That’s a sign or sprout of divergence. It fits our topping process in risky assets worldwide case. Equity markets may be getting ready to show non-confirming highs.

Published 10th August 2018

The Dow Jones Elliott wave pattern is probably unfolding as an expanding ending diagonal since early April 2018. We expect to see another down-up sequence in the Dow Industrials to end minute wave v(circle).

The upcoming (b)-wave of minuette degree will probably dominate price action during the next couple of weeks or so. Momentum indicators continue to diverge and the swing up appears to lose steam. We expect the DJIA to correct inside the 24,850-25,050 price cluster. It will most likely coincide to a similar correction in the S&P 500. We see for S&P 500 a strong support and resistance cluster at 2,790-2,800 index points.

The main takeaway remains that the pattern is most likely to resolve to the upside sooner or later. Moreover, we expect prices to carry not far beyond the January high.

Medium Term Dow Jones Elliott Wave Analysis

Published 17th February 2018 & amended 3rd April 2018 (chart only)

The Dow Jones is in wave I of a cycle trend, which started at the March 2009 bottom. The count below gives a reasonable wave and time relationships. Moreover, the count has been followed and confirmed down to subminuette degree over the years.

We forecast a sizable correction ahead of us in 2018. The correction in primary wave 4° either started already or will start in the weeks ahead. It should trace out as a deep and complex structure due to alternation guidelines.

Long-Term Dow Jones Elliott Wave Analysis

Published 20th April 2018

Grand Supercycle in US equities

The US stock market shows price data all the way back to 1790. It can be fitted into long-term cycles, which result in Elliott waves. The popular opinion is that we are approaching the top of a Grand Supercycle trend. It implies that a long and deep correction is ahead of us. Our conclusion is very different to that and we base it on Elliott’s rules and guidelines.

Nobody reading this will witness the top of the Grand Supercycle during their investment career! The last fractal, Supercycle wave (V), is too short in terms of price and time to be near completion as we write this. It is just 9 years young versus its 72-year lasting Supercycle wave (I) sibling. Supercycle wave (I) started in 1857 and carried into the Great Depression. Supercycle wave (III) took 68 years as well. Hence, a 9-year swing does not fit into that picture.

The Dow Jones Industrial Average has completed a (IV) wave of Supercycle degree at its March 2009 bottom from a long run Elliott wave analysis perspective. The long-term picture is analogous to theS&P 500. Both indices show alternation between Supercycle wave (II) and (IV). Wave (II) was sharp, simple and retraced a great portion of wave (I) whereas wave (IV) finished as a complex and shallow irregular flat. Despite being shallow, Supercycle wave (IV) retraced more than a 38.2% Fibonacci of Supercycle wave (III) on a log scale. Price action during Supercycle wave (III) shows extended behavior. All of this is a textbook fit of Elliott’s rules and guidelines.

Price action confirms our thesis. Supercycle (I) recorded a twentyfold increase in stock prices. Supercycle wave (III) shows a two-hundred fold increase during its extended cycle. The odd one out is the current swing from the March 2009 bottom. It records a fourfold price increase. That stands out again and does not fit into the overall picture. It is way too short!

Please refer to our S&P 500 long-term trend analysis for a chart with a longer time-span.

We are currently most likely approaching the top of cycle wave I, which we expect to take place around 2021. Thereafter, wave action needs to develop cycle waves II-V until the Grand Supercycle completes in US equities.

Grand Supercycle in German equities

The German Dax index confirms the US equity picture. German stocks are completing a fifth wave of cycle degree. We see there a post triangle resolution to the upside. The fifth wave of cycle degree started in 2011. It is too young as well to be complete. More important, we see a three wave swing to the upside since the triangle resolved to the upside. This hints to a 1-2-1-2-3 setup in German equities. That setup after a triangle resolution resolves into strong progress to the upside usually. Again, German equities are way too short in their fifth wave with respect to time and price action as we publish this. Cycle wave 5 will probably run into 2021-2023 before it is complete. After that, the Dax will correct in a fourth wave of Supercycle degree and rally over the next decades. This confirms the picture on US equities. It would have been surprising to see a different conclusion on a western G-8 economy.

Fundamental Outlook For US equities

The implication of an objective interpretation of the Grand Supercycle in US equities is a secular bull run into 2021. It will be corrected thereafter and progress further during the next decades. This translates into a bullish outlook from today’s point of view. How is this possible despite elevated equity valuations at the time we write this paper?

Most likely due to nominal economic growth. Nominal growth is decomposed of factors such as inflation, population growth, technological growth, etc. These factors affect earnings. Especially our inflation forecast is likely to play a key role in this equation going forward. Stocks are a nominal asset and likely to increase during inflationary periods.

The Grand Supercycle top has been called way too often during the past couple of decades. The same analysts will continue to make this call if they do not objectively analyze the long-term cycle. They are currently off target by about six decades.

An inflation driven bull run is more likely instead of witnessing the Grand Supercycle top in the next ten years.

Technical Analysis