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[denmo83]

M on DJIA...

DJIA: Outlook for 2006

Review of the 2005 prognosis

Exactly a year ago two scenarios were discussed here for the Dow. The difference was just minimal as in both cases a new top was expected during the first half of the year - in the end a volatile sideways phase between 9.500 - 12.000 points was projected. The year should be marked by that correction phase.

In reality the trading range was significantly lower: the Dow stood between 10.000 and 11.000 all year long. Indeed there was the yearly top during the first quarter, afterwards it went down for a while. However, what was not expected was the dynamic rise during October and November - according to the outlook a weaker period was more likely here.

Long term chart technic

Basically one could say that the expected correction - even though with some deviations - did occur. As the heretofore long term Outlook was more lent towards sideways or slightly lower prices, 2006 should more likely be down.

The technical overall picture, however, has changed a bit, as a result of the 2005 patterns. These are clearly corrective, with a declining amplitude to the autumn low. The rise of the past weeks was rather impulsive. It is therefore highly likely that this sideways move is to be counted as a complex triangle, which in the medium term allows for an impulsive count. Concretely it is correction wave (4) and the latest rise is wave (5).

Monthly chart of the Dow (unchanged from the 2002 outlook)

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/90

Monthly chart of the Dow (cpi adjusted)

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/91

Daily chart of the Dow

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/92

Associated with that, of course, is a material change of the long term scenario. Still in the last yearly outlook the prognosis chart from spring 2002 was presented, with the restriction that at around 11.000/12.000 the long term alternative count would bite. Within a multi-year wave /C/ during 2005 - 2008 a bear wave to underneath 8000 points was expected. This negative view has to be altered due to last year's patterns. Basically the original outlook from 2002 persists.

However, this in no way implies that during the next 12-24 months the Dow will climb steeply because chart technically nothing happened during 2005. To the contrary: With a high likelyhood the Dow will remain at the level of 2005 ! What changes, however, is the downside target. This now is "only" at 9.500 points. Long term that expected retreat is counted as correction wave /2/, which at the end of 2006 implies the start of a three to four year long bull wave. But until autumn 2006 the drought persists.

That scenario in no way is bearish. More likely a big sideways move between 10.000 and 11.000 has to be planned on. Only during the last stretch in sort of a small sell-out prices in the four digit area are approached.

Early in the year the Dow even can look slightly upwards again, as within wave (5) gains up to 11.005 or 11.095 are possible and likely. Medium term that is just a side note, as latest by spring a first correction wave should take hold. Then the primary target first is the upper 10.400 area. During summer even a retracement to the yearly top is possible, as it is a complex sideways move as mentioned.

The charts above include an inflation-adjusted chart of the Dow Jones. It is used to verify very long term wave counts, as there many exaggerations and distortions are not included. Especially the impulse structure since the early Eighties is more clearly visible, as is the long term position. During the next 4-7 years the big impulse wave V of (III) should dominate the market. The long term price target is roughly 60 percent above the current level. As it is an inflation-adjusted figure the gains for the Dow should be materially above 70% - but all this in the very long term context, which does not allow for an explicite prognosis for 2006 !

Long term cyclicality

The detailed meaning and explanation of the various cylces is skipped here, as there is no new info. Please consult the old analysis of April 6th, 2004.

The result then was as follow:

Jan 2004 top (13.7 months)
Aug 2004 low (13.7 nmonths)
4th quarter 2004 top (4 years, 13.7 months)
Mar 2005 top (13.7 months)
***
4th quarter 2006 low (4 years, 13.7 months)
2008 low (Benner)
2010 top (Benner)

Review: The outlook for 2005 was as follows:
- moderate gains during the first quarter
- lasting low during October
- slight gains during the last three months

All three main statements were right, apart of the fact that the October low marked the end of the sideways correction, but was not the yearly low.

Outlook for 2006:

As all are very long term cycles, little can be said about the extremes within the yearly development. But there is a very important date during 2006 which is of the same significance as the lows in 1998 and 2003. They are verfied by the Benner-Cycles as well as the 13.7 months and 4 year cycles. It is a long term and significant low in the fourth quarter of 2006. Though there is a tolerance of +/- one quarter, in the past these extremes were rather on target. For the new calendar year a low in the second half of October results. From 2007 onwards the long term trend points up again.

Concering the shorter term cyclicality the last date was at the end of October, it was a low. Apart of that important autumn-low there is a weak time window for the first quarter. Towards the end of March there should also be a low, realistically it will only be an intermediate low though.

Considering that the red lights will only turn green towards the end of the year, 2006 does not look rosy from a cyclical view. Though it cannot be said how long a bear wave will last and how low the market can go, but in the past at similarly significant cycle dates sharp down moves could be observed. A downmove in the second half of the year until October (maybe a Sell-Off) would be ideal. From 2007 to 2010 it is the cyclical turn of the Bulls again.

Result of the cycles for 2006:

In October a long term and significant low is to be expected. Apart of the date of an intermediate low at the end of March, no more statements are made for 2006.

The following charts are just to illustrate the result mentioned above and are therefore without further comment.

Dow Jones 4-year cycle

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/93

Dow Jones 13.7-months cycle

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/95

Dow Jones with Brenner-Cycles

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/94

Yearly outlook for 2006

In principle the long term cyclicality and Elliotwaves nicely fit together. In autumn 2006 a big and long term low is expected, ideal would be a low in the 9.400 area. Early in the year around 11.000 the yearly high is marked, so that the trend points down afterwards. Apart of the last dynamic move in September/October the Dow likely will remain at the 2005 level and mostly move sideways.

The technical alternative is a very strong first quarter to above 11.400 points. In that case the downside tartet for autumn is reduced to around 10.000 points.

Yearly Dow outlook for 2006

http://www.wallstreet-online.de/ws/news/news/viewpic.php?picid=042/54/96

(Thanks C)