Can the Dow diverge? Yes! In the 'Classic' market top, the narrowly based Dow Industrial Average goes on to make newer highs while the 'more broadly based' indexes stall and show the "damage beneath the surface". Will that classic scenario happen again? Remember back to our post of Jan 21, 2022 where we posted this alternate count. See the red line as the alternate count. We said a fifth wave up was 'possible'. Since that time, we have been trying to count the down movement, and we have done that and will try to see if that still fits.
But if we go with this long-term count on the Dow since 2009, then it is possible a fifth wave is still under formation. This count provides alternation between wave (2) as a 'running flat' and wave (4) as an expanding triangle. It is likely that the triangle would provide the best alternation.
Keep in mind that it is 'also possible' to stick a (5) where that red 1 is ending the entire up count on a divergence in the RSI, even though a long wave four with alternation was not counted.
But, barring that, then it is possible that the Dow could be in one of these two types of diagonals, both which are the ALTERNATES at this time.
The expanding diagonal on the left 'technically' works in terms of the length of wave (3) vs (1) and (4) vs (2). But the two issues with it are the very shallow retrace for wave (2), and the way the wave (3) vertex cuts off some of the points within wave (3). In some ways - with only one wave left to go - it is the easier pattern to complete, although wave (5) is expected to be longer than wave (3).
Similarly, in the potential contracting diagonal version, wave (2) has not made the classic 62% retrace, but at least its retrace for a second wave is deeper - at 38.2% - than in the expanding diagonal version. But here, many more waves are needed to bring this pattern to fruition.
Again, both of these patterns are made possible by the ALTERNATE count we provided in response to a comment on the blog where the DOW 'only' has (A), (B), (C) down as was shown in the following chart.
Part of the reason for raising this query is the DOW made a slightly higher high yesterday, and the formation at the right-hand side of the chart 'might be' a triangle that points upwards.
Have an excellent start to the day,
TraderJoe
Thanks Tj.
ReplyDeleteIn last 3 months cpi good data has pushed markets up. Still up with today bad data. Was 3500 bottom, then the count has to change accordingly.
Diagonal idea from yesterday still looks good 😊👍
ReplyDeleteThe Trannies are in full bull mode, having taken out their Nov-Dec high decisively since the beginning of February. If the Industrials can push up to 35,000 in the next week or two, we'll have a classic Dow Theory bull market signal.
ReplyDeleteHowever, it will be a bull market unlike those of recent history. The Fed will stay tight for a year or two until inflation subsides. That limits the upside for many stocks. So, I expect folks who are good at stock selection in a range-bound market will do well; others will get very frustrated as the market flops around.
To use a football analogy, this bull is not going to be a 35-7 blowout, it's going to be a 27-24 game. Companies that are good at grinding out yardage due to pricing power will do all right.
Whole thing still sounds like 1970s to me.
ReplyDeleteGrind sideways for a decade with a nominal new high, but lose 65% to inflation adjusted values. Basically boiling live frogs.
https://www.macrotrends.net/2324/sp-500-historical-chart-data
Thanks for the chart!
DeleteA tidbit: Back in the 1980's there was a flamboyant stock guru named Joe Grannville who on an unrelated note devised the concept of "On Balance Volume". He also discussed the phenomenon of the Dow going on to make new highs after the other indexes had peaked. He referred to it as "The solitary walk of the Dow", and was predicated on the concept that at the time, the stocks in the Dow were the most sound cream of the crop and held up better than other stocks before succumbing to a downturn.
ReplyDeleteYep, "the classic". TJ.
Deletebears are definitely throwing in the towel and giving up the market will go down based on reading various sites.
ReplyDeleteI'm sensing that too. TJ.
DeleteA new post is started for the next day.
ReplyDeleteTJ