Jerry Favors Analysis Friday June 3, 8 pm
Our May newsletter was written the week of May 13 to May 15, and went out the next day. In that issue we stated that despite the sharp decline we had seen down to the May 13 closing low of 10140 , our work suggested a probable rise up near the 10500, plus or minus 50 point area in the Dow, and which would likely begin the coming week. The actual closing low was on Friday May 13. The Dow began a strong rally and reached a closing high that same week of 10493, within just 7 points of 10500. After sideways action for a few days, the Dow has so far reached a closing high of 10554, on June 2. Today, June 3, the Dow closed down almost 100 points.
It is a bit too early to assume we have seen the next important high and that a much larger plunge now lies ahead. That may very well be the case, but we need more than just one day's action to reach that conclusion.
There were, to be sure, several potentially very negative factors in the recent rally off the May 13 low, when the Dow closed at 10140. For instance, the action in the 5-Day Advancing Volume, one of the best indicators around for forecasting tops, has been showing very negative action since this rally began. While the Dow has moved higher week after week, the 5-Day Advancing Volume is showing terribly bearish divergence. This same pattern has shown up at many market highs over the years.
For next week any decline below today's lows in the Dow should signal that a stronger decline is coming at some point next week. This week's print low was 10448..
To prove the market is going higher over the short term here the Dow must rise above 10587 on a print basis. If that occurs the Dow should go higher, however even if that occurs next week we would still look for a probable high of some kind in the 10694, plus or minus 63-point area in the Dow.
The above are really just short-term concerns. Further out the current Lindsay 3-Peaks and Domed House pattern, which we have discussed at length in our newsletters, still calls for significantly lower prices between here and the end of the year. Our Lindsay Standard Time Spans, also discussed numerous times in prior newsletters, suggest the next true bear market low will likely be seen between here and April to May of 2006. Our most important long-term indicator, the Lindsay Long Sequence, suggests a bull market high is due this year, and a bear market low is due in 2006. There are ways for us to be more precise, but we need a little more evidence that the March highs of this year were the peaks of the 2002 to 2005 "bull market". If we have not seen the high just yet, that high would still be likely within the next 3 to 4 weeks.
