Sector Investing

[ReturntoSender]

Amateur Investors Weekend Stock Market Analysis (10/23/10)

http://www.amateur-investor.net/Weekend_Market_Analysis_Oct_23_10.htm

From late 2007 through early 2009 the Dow had a sharp 5 Wave pattern to the downside in which it lost 54% of its value. This was then followed by a sharp 74% rally over a 13 month period.



Going back over the past 110 years there are two similar looking 5 Wave patterns that were followed by parabolic oversold rallies. The first one occurred from 1973 through 1974 in which the Dow lost 46% of its value. This was then followed by a sharp 80% "abc" type rally over an 18 month period in which the Dow peaked just below its early 1973 high. Meanwhile once the Dow peaked in the middle part of 1976 this was then followed by an extended choppy consolidation pattern which last nearly 7 years before the Dow finally rallied strongly again beginning in 1983.



Meanwhile the other similar 5 Wave pattern occurred from early 1937 through early 1938 in which the Dow lost 50% of its value. This was then followed by a sharp 64% rally that took the shape of a Triple Zig Zag pattern as the Dow peaked at its 61.8% Retrace. After peaking in late 1938 there was a 23% correction which was then followed by a minor "abc" rally which saw the Dow rally back to near its previous peak. Meanwhile after peaking in late 1938 the Dow then trended lower over the next 2 1/2 years as it eventually retested its prior low by early 1942 after losing 42% of its value. Thus the entire structure from the early 1937 high to the early 1942 low ended up being a large "ABC" type corrective pattern.



Once again looking at the current chart of the Dow either pattern mentioned above is still possible. If the Dow is exhibiting a similar pattern to that of the mid 1970's then the latest rally from the July low is the final "c" wave of an "abc" type pattern. If "c" ends up having a length that is 61.8% of "a" then that would yield a value around 12573 which is very close to the 78.6% Retrace. Meanwhile once the "abc" pattern completes then we would see a choppy consolidation pattern develop during the next several years which could easily last through 2017 or 2018.



Meanwhile if the Dow is exhibiting a pattern similar to the late 1930's then Wave B peaked at 11258 back in late April at its 61.8% Retrace. Furthermore the recent rally from the early July low is just a minor "abc" type rally which will peak just below the previous high of 11258. This would then be followed by a gradual downward trend for Wave C in which the Dow would eventually retest the low made in March of 2009 at some point in 2013 or 2014.



With the Dow currently near its late April high of 11258 it appears we will find out rather soon which potential pattern mentioned above may evolve in the longer term.