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A Possible Bull Count For The Dow?

06/14/05 08:01:45 AM
by Koos van der Merwe

On June 7, in the article "A Demise In The Dow," I offered an Elliott wave count showing how the Dow could fall in a bear market. After hearing Alan Greenspan's recent remarks, I present to you a count for a bull market.

Security:   DWIX
Position:   N/A

US Federal Reserve chairman Alan Greenspan states that he is of the opinion that the US economy is on "reasonably firm footing" despite the "uneven character of the expansion over the past year." He has indicated that the US central bank is not done raising interest rates--at least, not just yet. He also intimated that it is "very difficult" to know what level of interest rate is optimum for the economy, although "we probably will know it when we are there."

Since June last year, the Federal Reserve has raised its short-term interest rate target from 1% to 3%, while at the same time 10-year Treasury rates have declined from 4.7% to below 4%. This flattening of the yield curve is what many are calling the "bond market conundrum."

When long-term interest rates fall below short-term interest rates (this is referred to as an inverted yield curve), there is a very good chance that a recession lies ahead. Sir Alan, however, differs. He does not believe that falling long-term interest rates indicate economic troubles ahead. He and other officials at the Fed are upbeat on the economic outlook, and he has remarked that even if the yield curve did invert, they would "not automatically assume it will mean what it meant in the past" -- meaning that he does not think an inverted yield curve implies the economy will slow down. I remember the talk of a "New Economy" before the bubble burst in 2000. To have Alan Greenspan say that things are different this time around surprises me.

Readers know that I have been long-term bearish, and that at the moment I believe that the Dow is in a short-term bull market correction. However, after Greenspan's recent remarks, I felt that I had to have another look at my short-term charts. I asked myself what the chart would look like were the market in a bull run. Here's what it would look like (Figure 1).

Figure 1: A positive for the Dow?
Graphic provided by: AdvancedGET.
The chart is suggesting a target for the top of wave V as being 11843, 12569, or 13018. This looks feasible, but only if the Dow breaks above the long-term resistance line. Note also that it will be a fifth-wave top, with a bear market, A-B-C trend to follow, so whichever way we look at it, the short-term trend is up, but the long-term trend is down.

Let us hope that Sir Alan's optimism is correct.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.

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Date: 06/15/05Rank: 3Comment: 
Date: 06/16/05Rank: 3Comment: 
Date: 06/18/05Rank: 3Comment: Dear Mr. Singer, However the capital markets may or may not work in terms of providing investment assets to productive functions through positive asset valuations as those values are measured by price activities, the total economic image also requires more than the Dow Industrial or S P 500 as technical indicators of either fundamentals or technical valuation performances. Your analysis, while leaving aside generalities about technical analysis providing the all of market and economic performances, does not address other factors to which Mr. Greenspan certainly refers but does not specify. In addition, your childish designation of the Chairman as Sir is a low-blow, not at all humorous except in your mind, and better fits the juveniles who have grown to maturity in the gilded age since 1984 or who rioted in the streets of New York City in 1970 but today respect no notions of civicas as honor, duty, and noblesse oblige once served as the touchstone for a citizen of a free democracy or republic. Your analysis is good but your touchstone is not. You degrade this magazine and its on-line section with your absence of intellect so far as any affairs outside your own view from the perch are concerned. In consequence, you degrade the objective value as provided through your analytics and contribute a significant amount in your work of today which has no value other than to serve as a model for the kinds of polemics which insurgency sympathizers in the DNC provide while hoping that defeat of human rights and freedom shall bring them victory. No respect, Eric W. Hands 5035-15th Ave N.E. - #205 Seattle, WA. 98105-4335 USA 206-527-0643

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