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LOOK REPORT #18: DJIA Index
Background: Quick Look Reports will look at a possible dominant trend in an Index, Equity or Commodity and some possible long-term (monthly/yearly) trends which could emerge from the dominant cycle(s) (the datasets will be either daily, weekly or monthly). Quick Look Report # 18 revisits the weekly closing prices of the (late) great Dow Jones Index (DJIA) from 1918 through Dec 2005 (see also Quick Look Report # 4, June 2005 as well as earlier DJIA predictions on Magnificent Seven). The primary seven weekly cycles in the DJIA Index are at periods of 52, 69, 109, 176, 233, 334 (or 354) and 1900 (37 Year K-Cycle) weeks (looks almost identical to S&P 500/NYSE Weekly Index). A prediction of the DJIA Weekly was made in July 2004 (see FSU Archives Rinehart on Magnificent Seven). As we have noted in the past, the amplitude of the long-term cycles in these major market Indices correlate very strongly with similar cycles in M3 and Bond Markets (for decades). In Quick Look Report # 4, it was noted the 354 week cycle (shifts by 20+-weeks depending upon M3 pumping) was peaking in July 2005 which has contributed to this large broad top. The real effects of this cycle will come into play in 2006 as it starts to accelerate downward (in unison with other large cycles). The 176-week and 354-week cycles have been around in the DJIA (carry over from Bond Markets) for decades. By way of review, Chart 1 shows how these large cycles came together in phase in 1929 to contribute in a major way to the Stock Market Crash of 1929 (and every other market crash). It may be possible to phase large financial cycles if you control the fiat money supply of a country. My what big eyes the Fed has – why the better to see the long-wave cycles, my dear! The largest cycle in the DJIA Index weekly closings (the 334 to 354 -week cycle) is shown in Chart 2 from 1980 thru 2005. This major cycle has formed a top (max predicted peak in July 2005) and will start taking the DJIA down with it for 2006 (possibly already started). There is no long term bull market in the DJIA Weekly Index again until this cycle bottoms in Sept 2008! Is everybody all excited by the start of a “bull market” for Jan 2006 in the DJIA? What’s wrong with this picture? Chart 3 shows the prediction for two large cycles (233, 334 week cycles) in the DJIA Weekly Index from Jan 2006 thru 2012. The DJIA is predicted to drop significantly after June 2006 and these cycles do not bottom until mid-2008!? These large cycles will be reaching the maximum downward acceleration in Oct 2006 – so where is the beef for the DJIA rally or linear growth in 2006? Chart 4 shows the participation of the 18-week cycle from 1918 thru 1939. This cycle formed an increasing amplitude into the “crashes” of 1929 and 1937. In other words, based on reviewing/predicting other crashes in the DJIA since 1918, it is the 18-week cycle that shapes the approaching wavefront of a crash and produces the sharp “drop”. This could be an early warning indicator for an approaching cold front. Yes, this method predicted the coming crash of 1937 if we truncate the data in 1935 (because of the large cycles such 176,233, and 354 week were going down together) but it was the “growth” in the 18-week cycle which sharply defined the 1937 crash wavefront and that happen in the last 18-week cycle before the crash. Chart 5 shows the participation of the 18-week cycle in 1987. This cycle started increasing in amplitude but one only had “one full cycle” (or less) of warning before the market crashed. In other words, in some cases we may have only 18 weeks or less warning until a crash occurs after the amplitude in the 18-week cycle starts growing. Chart 6 shows the current 18-week cycle in DJIA from 2004 thru 2005. This cycle has started increasing in amplitude! We do not know (on just the basis of this cycle) which top will be involved in the “crash” but it is flagging a potential incoming storm. The 18-week cycle is currently heading down with maximum downward acceleration in late January with bottom in Feb 2006. Chart 7 shows the predicted tops in the 18-week cycle in DJIA for 2006 thru 2007. My favorite candidate is April 05, 2006 since this date is close to Iranian Oil Bourse and Fed needs to pump against this cycle top to keep its head above water. Watch for some neat coming volatility. What interesting times we live in!? Chart 8 shows the prediction DJIA for 2006 and after a final top in April 2006, it is heading downward. This prediction does not include the 1900-week cycle (which is also heading down). The DJIA will close at (or below) 9071 on Dec 24, 2006. If we include the 1900-week cycle it could be below 9000. The beach sands (of M3) are eroding away for the Fed against the incoming waves. There are no redeeming features to this formation for 2006/2007 and I have not liked the DJIA since Oct 2005 (since earlier Quick Look Report # 4). Bottom Line:
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INFORMATION DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. |
