Dow Industrials: Big Picture

The monthly SMI in the subchart (red/white) has been overbought for sometime and if this line can cut the gold one to the right, there maybe some life still left in this bell weather before the cards fold. However, the gold monthly displaced SMI is currently calling a bottoming zone beginning the end of 2013 (this year!!) This requires the red/white SMI to descend to the bottom of the sub-chart to fulfill the forecast. We are already through D1 and sat on top of D4, which of course is out of sequence to the natural order of things at D2. If D2 can not hold at 12250, then D3 is a lurch lower at 10000. Big issue for the market however, is that getting to D3 bypasses D5. Now look at where D5 was in the order of things at the 2009 low - it was a massive anchor for the market as it was still rising at that point. Re-taking D5 back then, meant a likely return to D4 as opposed to pushing on down to D6. We are sat on top of D4, so the forecast has been fulfilled. The natural sequencing for D4 is D3 or D5, but D5 does not look quite as resilient in its current position to me as 2009 and the next stop at D6 may just be the ticket to buy via D3. This sits at the 127% extension of the possible 'A-B' on an analogue scale as shown in this chart. On a log scale it is a 162% extension. Happy New Year!!