18Feb2006 DOW JONES 13,000 ...
It seemed like old times this week watching the cyclical DOW make new highs for the bull market with the TRANsports, as the three other main indices: NAZ/NDX/SPX lagged behind. At first, when the DOW was only rising and trying to lead the market, I discounted its efforts. It had tried and failed in this type of leadership many times. The growth stocks of the NAZ/NDX lead this market.
When the DOW started making new highs this week after bottoming on January 20th at 10667 making a lower low than December 30th's 10718, I knew the impulse waves I had been seeing were indeed impulse waves. And, the DOW was extending into a minor wave 3, of intermediate wave iii, of major wave 3: a third of a third.
Can cyclicals lead a bull market? In the beginning of an economic expansion, yes, as they are the first to be bought. Can they lead this bull market? I think not, but they can surely get it started again, like giving it a second wind. There are two technical factors to watch as the DOW moves higher. First, there is a rising two year trendline (see INDU weekly chart) currently at 11200, this is the bears first line of defense. Secondly, there are four overhead EW pivots points created during the bear market: DOW 11350, 11401, 11426 and 11750 (see INDU daily chart), this is the bears last line of defense. After these are eclipsed, expect massive capitulation by the Elliott Wave bears. Unfortunately, that's how markets are made. Someone is always right, technically I feel it will be the OEW.
Since there are no further reference points after 11750 is eclipsed we have to resort to fibonacci relationships. I will not not get into all the math here, just summarize the results. Primary wave V should have some sort of relationship to either primary wave I, primary III or primary waves I and III combined. Primary wave V began in October 2004, it has been subdividing into a lesser and lesser degree of waves ever since. Also, major wave 1 of primary wave V should have some sort of relationship to major waves 3 through 5. Here's the results:
at 11161 major waves 3 - 5 = major wave 1
at 11553 primary wave V = primary wave I
at 11878 major waves 3 - 5 = 1.618 times major wave 1
at 12693 primary wave V = 1.618 times primary I
at 13037 major waves 3 - 5 = 2.618 times major wave 1
at 13045 primary wave V = primary wave III
at 13264 primary wave V = primary waves I - III
To summarize the fibonacci relationships: we have a fibonacci cluster between 13037 and 13045 which involves all the waves being analyzed; the primary waves and the major waves. This is the likely fibonacci target for the DOW during primary wave V: DOW JONES 13000! After all the trashing the DOW has received over the past few years, it will be the only one of the four major indices to make all times new highs. Very appropriate don't you think. Let us not forget one very important point about the TRANsports. Historically, this index usually tops one to two waves BEFORE the DOW. Keep this in mind during 2006.
| 17Feb2006
Google riding the OEW
It is my opinion, based upon many years of observing the markets and living in this great country. That every generation a company comes along, just at the right time, and nearly monopolizes a relatively new and explosively growing industry. One could state it was General Motors in the '40s and '50s, IBM in the 60's and 70's, Microsoft in the 80's and 90's. I think this time around it's going to be Google in the 00's and 10's. Whoever sets the standards in a new industry becomes the standard. Being an electrical engineer, I personally witnessed these events with IBM (mainframe computers) and Microsoft (microprocessor computers). Google, in my opinion, will become the international internet, because it is organizing the internet. Just my humble opinion.
I've been observing this stock since it went public in August 2004. Reported about it a couple times here in the past: "the Google Effect". As the fastest growing large scale company, I believe, in the world. At times it impacts the stock market. Twice I've witnessed them report better than expected earnings and the stock market just seemed to react to the news by soaring. And, at other times they report expected earnings and the markets soon headed south. Coincidence, maybe. A reaction to a reflection of the tech industry, probably. Whatever the reason I've termed it the "Google Effect".
In a Barrons article this past weekend: "Gurgle", they speculated about the stock losing half of its value in the next twelve months due to various reasons. It might happen! Investor sentiment creates price, and investor sentiment creates bull and bear markets too. OEW measures, quantitatively, investor sentiment. These few statements gave me the idea of analyzing Google using OEW terms. I never have applied it to individual stocks. So as an experiment I took Google's less than two years of price data history and analyzed it. The results were very surprising: it actually is rising in its own bull market. I'm posting a daily chart GOOG021706 in the photo section, and will add the daily and weekly charts to the "chart link".
It appears Google has completed three major waves of primary wave I from the initial public offering in August 2004. The 1st major wave ralled from $85 to $196 by Oct '04, and corrected in major wave 2 to $165 by Nov '04. Wave 3 lasted over a year, subdividing into five intermediate waves, and rising from $165 to the recent high of $472. Since the top last month, the stock has been pummeled, falling to a low of $337 on wednesday: earnings disappointments (which I reported), conflict with the justice department (also reported) and assorted other negative news like the Barrons article. At the wednesday low, the stock was the most oversold it has ever been using MACD and the MMI as momentum references: typical of a 4th wave, a major 4th wave. It touched it's 200 day moving average for the very first time. Also, this major wave 4 correction formed an ABC zigzag alternating with the major wave 2 ABC flat. It's a perfect Elliott Wave!
My conclusion: if Google starts impulsing up from these levels it's probably heading to new highs to complete the major 5th wave and primary wave I. Let's watch as it unfolds in the coming weeks and months.
Remember I've never applied OEW to stocks. This is an experiment. And this entire analysis is only an observation and by no means a recommendation. Everyone should understand that I observe the markets, more than 25 of them in fact, in OEW terms. And, report my observations on this blog and in other public forums for informational purposes. This is only an experiment...Enjoy the extended weekend
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