(11/2/13)
Each week I get a few questions about the long term prospects
for the market. The three most likely scenarios over the next
several years include the following. Bullish Scenario:
There will be a repeat of the period from the mid 1980's through the late 1990's
in which the Dow will just higher in a nearly straight line (represented by purple
line) . Bearish Scenario:
The Dow has completed a large Broadening Top pattern (represented by black
lines) and will eventually retest the lower trend line connecting the 2002 and
2009 lows near the 6000 level (point A). This would be roughly a 60%
correction from the most recent highs. Middle of
the Road Scenario: In this scenario the Dow would trade nearly
sideways in a choppy consolidation pattern (represented by the green line) for
the next 10 to 15 years and basically go nowhere.
Overall I believe the Middle of the Road Scenario is favored based on the long term trend exhibited by the 18 Month Relative Strength
Index (RSI). Notice the 18 Month RSI has been trending downward
since 2000 (represented by brown line) even though the Dow has been making new
all time highs. Keep in mind this is the same type of action that
occurred from the mid 1950's through the mid 1960's and further back in the
early 1900's (represented by the dark purple lines). In both of those
events a 17 year choppy consolidation pattern followed in which the Dow went
virtually
nowhere.
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