The US markets have outperformed the rest of the world.
European markets seem to be in bear moves since around May 2018.
So the BIG question is - referring to US markets and the DOW in particular;
What exactly are the markets correcting?
Since 2008 there has been a bull market
Within the bull market there has been a correction leading into 2016 , and a rally since then - the " Trump" rally.
A correction in early 2018 and a rally to new highs
DOW monthly chart below
The box outlines the Trump rally
Show a double top
The rally has retraced to the 23.8 % Fibonacci level, this is usually the minmum retrace
Odd are that it will test the 38.2 % level , 22300 approx.
Why? Too many investors are still in the BUY the Dip mentality
The market has changed since the first correction on 2018
There are genuine concerns about a slowing economy in 2019 which doesn't support valuations seen earlier in 2018 - whether recent falls have made these fairer is still open to debate - so UNCERTAINTY - never good for markets
Trade wars - more UNCERTAINTY
What if the correction is actually of the whole rally from 2008 ?
The market has rallied over 300 % since then
A correction of that would be more severe (and still be in a SECULAR BULL market)
DOW chart below showing Fibonacci retracement levels
Coincidence - 23.8 % retrace is almost same as the 38.2 % retrace shown in first chart (22300)
If the correction is for the whole 2008 rally, there could be a lot of pain ahead.
In Elliott Wave terms the whole rally from 2008 could be a wave 3 (typically the largest and longest), with the fall in February as a smaller wave 4 and then rally to new highs for smaller 5 , which completes wave 3.
All that aside , favour a fall to 22300 unless the markets turn around PRONTO!
Talking heads (CNBC) keep talking about how the market is good value - good contra-indicator.
CAVEAT: Medium term bearish scenario may change if there is some deal with China, the FED LOWERS rates instead of raising.
Very good presentation of all possible scenarios. This is what is needed for trading success CLARITY, rather than trying to know the future, which is impossible!!!! The future will simply unfold whatever it is and your job is to adjust and adopt to it whatever it is, which is obviously one of the possible scenarios you already outlined above. I liked your approach!! Keep it up!
ReplyDeleteThanks!!
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