Long-term DJIA waves and momentum indicators
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| 2011-01-18 23:25 | perskaitė: 4544
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DJIA,
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sentiment,
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Long-term DJIA waves and momentum indicators
Indicators of stock market momentum almost always announce the beginning of a huge bull market. They do so by creating a tremendously overbought co
Indicators of stock market momentum almost always announce the beginning of a huge bull market. They do so by creating a tremendously overbought condition in the initial stage of advance. While this tendency is noticeable at all degrees of trend, the Annual ROC is particulary useful in judging the strenght of "kick-off" momentum in large waves of Cycle and Supercycle degree.
The fact that in February 2010 this indicator almost hit 50% level is a strong confirmation that it marks the beginning of at least five Primary waves containing bull market, which will carry the DJIA to new all time higs. In other words, Feb 2010 marked the start of something more than what has come to be regarded as the norm, a 1-year bull market followed by a 2 year bear(2007-2009).
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There is one more interesting development on the sentiment front (not shown)-the AAII sentiment Survey, Investors Inteligence advisors survey, Daily Sentiment Index-they all are registering much more extreme levels than they ever saw in April 2010, and some of them are registering the most bullish readings ever in the DJIA history (fund managers are holding record low cash of only 3,4%).
This assessment has been proved by now, with the DJIA over 600 points higher than when the sentiment figures first gave sell signals based on the old parameters back in April last year. Sentiment figures are a function of the vitality and extent of the market in progress. The fact that the sentiment readings of April 2010 top have been exceeded is more good evidence that the Supercycle (V) Wave on the DJIA has begun.
Remember, this kick-off is just the setup phase. As Advance further develops, sentiment indicators should reach much more extreme levels than they ever saw in the April 2010. Put/call ratios and ten day averages are valuable as far as they go, but they are best interpreted within the context of the broad sweep of market events.
The only unclear picture is the degree of the advance, but it is possible to say that the most realistic picture is that we will experience a Supercycle (V) bull market, which contains of V Cycle waves, which every further Cycle wave subdivides in five Primary waves. Total amount of this Supercycle Wave (V) is 24 Primary waves, we have completed just 2 of them, so it could take a couple of decades to complete them all (in probabilistic terms).
I can assume that we are now in the middle of Cycle wave I, which will probably ends in the early 2012 at the all time highs in the DJIA where 7,5 year toping cycle is operating in full force.
Then the Cycle wave II will generate a three Primary waves containing market Crash, and when it bottoms out, the fundamental and sentiment conditions will be much worse than those in March 2009, despite the DJIA will be much higher than at this nadir.