Thursday, 10 May 2012

The Decennial Pattern suggests that now is a good time to buy US stocks

Now is an opportune time to re-post a slightly tweaked chart of the Decennial Pattern on the Dow Jones Industrial Average (courtesy of

Why? Read on.

The chart extrapolates the average decades from 1900-2010 in to the expected behaviour for the current decade. It shows the paths that the DJIA would take this decade if it were to follow the trajectory taken in the average decade; or the average secular bull market decade; or the average secular bear market decade.

As you can see, under all three categories the Decennial Pattern anticipates a rally to begin in May or June 2012. Under the average case and the bull market case, that rally would be launching point for a bull market lasting to the end of the decade.

S&P 500 poised to rally from bottom of corrective trend channel?

The S&P 500 has spent recent weeks testing the illustrated support zone, surrounding the 2011 highs (not on chart). The pattern of trade has so far unfolded within a corrective trend channel, suggesting that a rise to new highs may be near.

ASX 200 continues to wrestle with the trend line drawn from the August 2011 low

A rise above yesterday's high, back above the upper trend line, would favour a rally in coming days and possibly weeks.

Zooming out to the long term view, perhaps the market will test the uppermost down trend line in coming weeks, around 4550. A decline through this week's lows would diminish that potential.

AUD/USD may have completed its correction, judging by Fibo, EW, and weekly chart trend line

Starting with the big picture view, the weekly candlestick chart shows the AUD/USD wrestling with (bouncing from?) the zone surrounding the trend line drawn from the late 2008 lows.

Zooming in to the period subsequent to the August 2011 high and looking this time at the daily candlestick chart, we see that an Elliott Wave A-B-C correction may have ended at yesterday's low. For non-EW people, a completed A-B-C correction calls for an AUD/USD rally in coming weeks. Thanks to reader MH once again, for suggesting this wave count, and pointing out that C = 0.618 * A, which added to the perfect trend channel, increases confidence in this wave count. How does this A-B-C fit within the bigger picture? There are a few options, but I will wait for more of the pattern to unfold before exploring them.

If this week's low is broken, I would push last week's count back to preferred status, calling for a continued impulsive decline toward the low to mid 90s.

It's possible that some of my regular readers may be wondering how within the space of two weeks I can flip from mega-bullish, to mega-bearish, back to bullish, with a potential flip to back bearish less than 1 cent away. The two drivers are the "strong opinions, weakly held" thing that Peter Brandt has written about, and the other is my trading time frame. When trading currencies, I am looking for patterns to exploit that give me an edge over coming days, usually less than a week. With stocks and stock indexes my interest is usually (though not always) longer term, so my opinion tends to be less changeable.