Thursday, July 12, 2007


Big Picture

But first the little picture. I must admit I am a little confused about how to label this chart. It is clear that we have a triangle pattern and since I am writing this on July 12th and the Dow has broken out on the upside the correction is over. The problem is is this correction a part of the smaller waves I have labeled on this chart or is it a part of a larger correction. The size relative to wave 2 is just too large. A lot of this confusion is related to the larger count which I will take up in the next chart. In the interest of honesty I was wrong to have labeled this wave 4 so prematurely and finished so quickly. My goal is to predict larger trends; that is, to keep long as long as the main trend shows that. I am trying to keep an investors mentality.

Which leads us to the very confusing big picture. At least confusing if you are looking at the Dow Industrials. There is a clear bull trend starting in early 2003 with a correction that was difficult to see in real time which ended in October '05 or July '06. After that we have have clearly defined up moves and corrections to the bull market. I am not going to go into explaining what has happened before Oct. '05, you are not interested and I am too lazy. Besides what is interesting is that the wave patterns since then show a wave count which should be producing a significant top. The cheery on top of this sundae is the triangle which just ended. Triangles are patterns you see towards the end of larger moves. Add that to other problems with the market and there is a case to consider the next pullback to be larger than anything we have see since 2003. For the record, after a triangle the market moves at least the length of largest width (413 points) from its end which was July 11th at 13,475. So the Dow should be up to 13,888. We are less than a hundred points from there now. After that if the market breaks through the bottom of the triangle (13,250) it is look out below.

Luckily, the Nasdaq hasn't been that confusing. This bear market rally has maintained a corrective pattern and has been showing slowing upward momentum for a couple of years.

Even more pretty is the Dow Utilities. It is not hard to see this bull market or to give a solid prediction of where it will end- a decisive break of that lower trend line. So the bull is intact but showing signs of stumbling. Next time I have the time to post some charts I will show you the Japanese Nikkei and an update of the post-triangle Dow.

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