DOW, 2018, 2021, the year of the Ox

DOW Jones Industrial & Fibonacci

To look at important turning points in the market, it often helps to use Fibonacci time ratios. In the chart below I use a very(!) long term price chart. By taking the lows of 1789 and 1932, it is immediately clear that they are 143 year apart, which is a 144(-1) fibonacci number. Projecting this from 1932 forward, using the golden ratio (1.618:1.00) we arrive in 2020. In addition, from the low of 1843 to the low of 1932 is 89 years, also a Fibonacci number! Projecting this forward using a 1:1 ratio gives us 2021.

Long Term DOW Jones

Chart 1: DOW Jones Long Term

Another chart is the so called Benner cycle, named after its discoverer/inventor. Benner found that markets make tops and bottoms at somewhat regular intervals using a 8,9,10 year cycle and a 16,18,20 year cycle. I extended this chart into the future only to notice an important low in 2021 and another important turning point in 2018.

Benner cycles

Chart 2: Benner cycles

By just using the DOW chart (chart 1) , it is by itself not clear if 2021 will be a top or a bottom, it can be either. Fibonacci ratios only indicate turning points. But by also taking into account the Benner cycles it becomes clear that 2021 will probably be a low.

But wait, there is more…

130504 DOW long term Fibonacci 2018

Chart 3. DOW Jones, Fibonacci Series 1932-2018. Click image to Enlarge

The Fibonacci series that started in 1789 continues. Starting at the low of 1932 we have the following sequence:

  • 1932+34=1966, a high
  • 1966+21=1987, a high
  • 1987+13=2000, a high
  • 2000+8=2008, a high
  • 2008+5=2013, a high (so far)

and if we continue

  • 2013+3 = 2016
  • 2016+2 = 2018

You can’t make this stuff up. A sequence that started over 230 years ago, with only 5 or so years left, and it is still valid! Given the long timeframe we allow for a small tolerance, such as the year 2008, ¬†where the high was actually in October 2007. Will 2018 mark the end of a 233 year advance?

130504 DOW long term Fibonacci 2021

Chart 4. DOW Jones, Fibonacci Series 1932-2021. Click image to Enlarge

Using 1932 we can also add Fibonacci 89 to end up in 2021. We can do this for every important peak after (see image):

  • 1932+89=2021
  • 1966+55=2021
  • 1987+34=2021
  • 2000+21=2021
  • 2008+13=2021
  • etc.

DOW Elliott Count

130504 DOW long term Elliott

Chart 5. A posible DOW Elliott count. Click image to enlarge.

So how will the DOW (and the stock market in general) unfold from here. If we assume a low of epic proportions in 2021, then we ‘only’ have to fill in a few blanks between now and then.

The DOW appears to be in a final wave 5 that started at the low in 2009. In this scenario wave 4 from 2000-2009 unfolded as an expanded flat. See image above. There is one problem with this wave count. Wave 5 doesn’t look impulsive, it’s too ‘choppy’. Given that there are 2 possibilities. (Well there are an infinite number but I only give 2 here)

130504 DOW long term Elliott

Chart 6. DOW Elliott count alternate 1

See image above. In this wave count, the DOW finished wave 3 in 2000 and is still in a massive wave 4 expanding triangle. This count supports the idea of a top in 2013 and 2018, followed by a low in 2021, as described above.

130504 DOW long term Elliott

Chart 7. DOW Elliott count alternate 2

Finally, in this wave count, wave 4 unfolded from 2000-2009. Currently wave 5 is unfolding. Since wave 5 doesn’t look impulsive, the only valid alternative is an ending diagonal, which subdivides in 3-3-3-3-3. This is certainly a possibility with more Quantitive Easing (QE4,5,6…?), having less and less effect, resulting in an ending diagonal. The advance will be carried by fewer and fewer stocks. Many sectors, like financial stocks (such as ING analyzed here) won’t participate.

This pattern also fits quite nicely with various cycle counts, such as the Benner cycle described above, as well as the Kitchin cycle.

Then around 2018 all options are finally exhausted, the Euro (zone) will collapse and the market will crash.

2021, year of the Ox.

In Chinese astrology, 2021 is year of the Ox. An Ox is a (castrated) bull. I think by 2021, most investors feel just like that. How fitting! :)

Bottom Line

2018 and 2021 will be turning points of epic proportions.