dow to 16000

http://www.joe-duarte.com

Target: Dow 16,000 In Future. Oil & Commodities: Oil Is Weak. Steel Is Hot. Stocks: Getting Tired.

by Dr Joe Duarte
November 20, 2006

Target: Dow 16,000 In Future

Technical Gauge Projects Bullish Future

A simple analytical tool called "The Swing Rule" is predicting a Dow Jones Industrial average close above 16,000 in the future.

The rule, purely a mathematical instrument is not meant to predict when, or how the Dow will get to 16,000. And our use of the rule is meant only as a very long term forecasting gauge in order to put the current market into perspective.

The calculation is quite simple. Take the top of the Dow Jones Industrial average in 1999 (12-30-99) at 11,722.98, and subtract it from the bottom of the Dow's bear market in 2002 (10-9-06) at 7286.27. Take the difference, 4436.71 points, and add it to the top, 11,722.98, and the target figure, 16,159.69 is revealed.

The fact that the swing rule is a simple and ancient technical analysis tool is the major reason that few use it. We picked it up in Stan Weinstein's book "Secrets For Profitting In Bull And Bear Markets," a long time closet bestseller in the technical analysis literature. We still have the original hardcover somewhere in the vaults.


Nuts And Bolts

So how do we get to such a bullish forecast?

Using history as a guide we note four key ingredients:

1. A general tendency in the population toward negativity.

2. A major switch in expectations signaled by the electorate.

3. Signs of a slowing economy in the face of higher interest rates that have been in place for an extended period of time.

4. The Presidential Cycle.

Negativity Is Good For Markets

From a contrarian standpoint, there nothing better for the stock market that high levels of negativity. According to the Rasmussen polls over the last two years the number of Americans who believe that the country's best days are ahead has fallen from 48% to 42%, while the number of those who believe that the best days have passed are up to 41% from 35%.

Polls from just about every polling service, over the last few years, have consistently reported that Americans believe that the country has been headed in the wrong direction.

And monthly levels of consumer confidence have been volatile, especially over the last few months. Yet, on a long term basis has remained flat, suggesting that Americans see themselves as being on a treadmill, always moving, but essentially standing still.

Yet, consumer spending continues to move higher, translating into higher sales for retailers that can capture the latest trends and offer good customer service.

Election Message

According to Newsweek, former president Bill Clinton recently told a gathering of high net worth supporters that the voters 'didn't give Democrats a mandate.They gave us a chance.'

In other words, just as in 1992, when they elected Clinton to the presidency, and in 1998 when voters elected a Republican Congress, the people have decided to make a wholesale change in the government.

Americans don't make such decisions hastily, despite whatever subtleties lay behind the decision. When voters speak loudly, it usually means that they've reached the end of their rope and they want change.

And the markets can sense the sentiment bottom in the general publick and tend to rally. In 1998, after the "Contract With America" victory for the Republicans, the Dow Jones Industrial Average rose 33.8% from 11-1-98 to 12-31-99.

In 1992, when Clinton beat Bush I, the market rallied 16.35% over the next year.

In other words, we could be seeing yet another one of those tectonic shifts in public opinion leading to a continuation of a significant rally in the stock market.

Interest Rates

The Federal Reserve continues to hint at the possibility of higher interest rates.

And although the central bank could make true on its thinly veiled threats, the more that time passes, the less the chance of such a move.

With housing statistics continuing to worsen and the potential for job losses in manufacturing continuing, the Fed will be hard pressed to raise rates.

The Presidential Cycle

The last two years of the Presidential Cycle are historically bullish for the stock market.

In fact, the market is at the early stages of the sweet spot for the cycle, as history shows that starting in November of the second year, stocks tend to rally until the autumn and winter of the next year.

Stocks usually move sideways until the summer of the fourth year, when they start rallying into the election.

How To Make Money

There are two ways to make money in any market.

One is to find strong sectors and ride the momentum wave. In this case, it's hard to argue with the strength in the blue chips and the surging strength of technology.