Instead of salivating over the possibility that the stock market has already topped, as we so often do, today we’ll go strictly by-the-numbers. This calls for looking at the accompanying chart as though it were a stock we really like, rather than as the sum of brazen falsehoods that have sustained the illusion of economic recovery. On that basis, we are forced to concede that the Dow looks at least somewhat likely to hit a new record peak before a bear market could begin in earnest.
The 17622 target is an oldie that should be familiar to those who have followed Rick’s Picks for a while. Although it was originally offered here as the maximum conceivable extension of the bull market, there is actually a higher target at 19438 that would be in play if the lower is exceeded by as little, perhaps, as 30 points. I’ve circled the recent selloff to show how insignificant it looks on a long-term chart. While some of us might like to imagine that the several 200-point down days we’ve seen recently are meaningfully destructive of bullish fantasies, this chart shows that only a very modest correction has indeed occurred, at least so far.
Practically speaking, we’ll want to short the bejeezus out of any rally that achieves our 17622 target. We should also try our darndest to be long on the way up, since 628 points of potential profit is not to be sneezed at, even by permabears who like to think they know better. There will be numerous hooks along the way that we can use to get long with relatively little risk. This we can do by jumping on uptrending abc patterns on the lesser intraday charts.
A bet on new all-time highs would become less speculative if and when the Dow exceeds a peak at 17195 that was recorded last Tuesday. That would generate an impulse leg on the hourly chart. You may be surprised to learn that this feat was not achieved by yesterday’s 275-point blitz. In fact, the rally didn’t surpass even a single prior peak on the hourly chart, let alone the two we require for a proper impulse leg. The foregoing is intended not only to stretch your bullish imagination, but to provide an empirical framework for profiting from a rally you may not want to believe in.