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Dow - The Big Picture

27 May 2016 ‚óŹ 08:49 AM

The Dow in its big picture is now facing the big debate between Analysts and it is very similar to the one you May see a few have on the Nifty. I have marked the Nifty top as wave 5 but there are many calling the recent bear market wave 4. Similarly for long EWI also called the rise corrective and has now opened up to the alternate that wave 4 formed and 5 up maybe pending. I constantly have this discussion with my technical team as well and we do tend to differ. 

The thing to consider when discussing a new high in the market, being corrective or a new bull market is the Fibonacci ratio. A new bull move usually goes past 138.2% when looking at medium term or short term charts. However on long term charts you may put an outer bound of 1.618 times. So while doing this analysis what I did is calculate the ratio at which the US Market topped in 2007. It did so exactly at 1.548 times the previous decline. So what is 1.548 times the 2008 bear market??? It is  = 18433, and where did the Dow top a year back? At 18351, so the rise in 2002-2007 in a channel was 3 waves based on channel touch points and 2009-2015 is also 3 waves and has reached exactly the same ratio which is within the 1.618 outer bound, which keeps the bearish options valid.

What was surprising was that 2007 and 2015 so far are topping at the same 1.548 times ratio. Remember ratio analysis is always done in % of the move and not points moved. Also note how since 2015 the Dow has tried to break below the rising channel but is still to break it permanently for the bear market case. It 2008 once the channel broke there was an attempt to go back into it which once failed we ended up with the great crash. So watch that channel.

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