DOW FORECAST
When I last updated this forecast, I was somewhat reluctant regarding the bearish outlook, but the chart patterns were pretty clear. Since then the Dow has followed my projection fairly closely, and severe technical damage has been done. Horizontal support at about 9600 has been violated, but, more important, the long-term rising trend line (A) has been decisively penetrated and is not likely to be recaptured. The Dow is officially in a bear market.
A massive declining trend channel has been defined by line "C", and we should expect some support at the bottom of the channel (line "B"). The symmetry of the pattern suggests a bounce, then a sharp decline into the 9-Month Cycle trough to around 7400.
I do not think that 7400 will be the end of it. In my opinion we are in a once-in-a-century bear market that is going to correct the excesses of the once-in-a-century bull market and will last at least into Q1 or Q2 of 2002. This implies a return to excessively low valuation levels for stocks. Measuring by yield, the historical high end of the yield range for the Dow is 6%. Assuming no change in current dividends, that would put the Dow at around 3000. Given this rough target, on the long-term charts (not shown) we can see long-term support in the range of the 1990 and 1994 highs.
--Carl Swenlin
(The arrows and vertical lines at the bottom of the chart show the location of 9-Month Cycle lows. (CLICK HERE for more info on cycles.)
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