Citi: "The Market Will Form A 'Terminal' High"
Stepping back from the trees to survey the forest (from the Moon perhaps) often provides some clarifying picture-paints-a-thousand-words view of the world. This is exactly what Citi's Rick Lorusso has done and while he called for a correction back in March which was followed by a 10.9% drop in the Dow, he was disappointed and is looking for a far greater adjustment - no matter how many times he hears about negative sentiment and QE and soft-landings. Starting from a truly long-term yearly chart of the Dow Jones Industrial Average, Lorusso conjures wave patterns, Fibonnacci, and cycles as he rotates down to monthly and daily charts to conclude that his charts "suggest the potential for a very significant high this year," in the July/August period, summarizing that Citi is "anticipating that the market will form a terminal high." - even more so on a rally from here as he warns "beware of new highs" so bulls be careful what you wish for.
Citi Prime Finance: Dow Jones: Beware of New Highs...MORE
We heard recently on the radio that investor desire for risk is now lower than anytime since the first quarter of 2009 when the equity market put into place a multi-year low. Sentiment is conspicuously negative and continues to be impacted by the continuous litany of “news” from Europe and more recently disappointing U.S. employment data. We are technical however so against this apparent negative back drop we thought it was timely to take a look at the market. In our last visit (S&P 500: Ripe for a Correction, March 8, 2012) we were anticipating a correction. We were early but April-May did deliver a 10.9% pullback which for the equity market was a fairly standard move. We were frankly expecting a far greater adjustment but that was not to be.
1. Dow Jones Industrial Average - Yearly Chart
Our attention today starts with a truly long term chart, an annual of the Dow Jones Industrial Average starting from early 1900’s. The magnitude of the price range necessitates a log scale. The first and most conspicuous feature we see immediately is a 13–year broadening top or as we have come to refer to it, a 5-point reversal pattern. Our pattern is more qualified however than a classic broadening top and consists at minimum of 5 significant turns. The highs, points 5, 3 and 1 are at progressively higher levels and are separated by two reactions, points 2 and 4 with point 4 lower than point 2. What is missing on the chart is a new all-time high on the Dow above 14198.1, the former point 3 high. Is it possible that could occur against the back drop we have described ? Based on a history of the stock market, certainly. If that in fact produces a dramatic shift in sentiment to the bull side, the market will then become exceedingly vulnerable to completing the foregoing 13-year pattern....