Wednesday, February 14, 2007

Dow Jones: the zero point energy

I see the Dow Jones up a minimum of 15% from where we are today.
The upward trend is fueled by what I call the "zero point energy".

The zero point is the equilibrium point between the economy ( as measured by the GDP) and the Dow Jones. Such points have been reached 8 times since the end of the second world war. We are now close to the equilibrium.
Each time the stock market has reached the equilibrium point, it moved upwards 6 times out of 8 ( with a minimum/maximum gain of 15.99%/72.73%). Thus, it moved downwards 2 times out of 8: in 1969 (when Nixon increased the capital gain tax) and on 09/11/2001.

I see no immediate threat right now.

Therefore, I can only be bullish. However, increased volatility at equilibrium points can be exploited by short term traders.

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