A number of question have been directed at what will this turning point produce. This should not be a major high or low in the major markets. What we should see is a mental shift develop at this stage in the game. In the case of 1987, there was a major high that formed first and then there was a major crash that BOTTOMED precisely on the target. That was the start in the shift of the capital flows.
This illustrates the impact is capital flows and this shifted the asset allocation from the USA to Japan. We had a rising Japanese yen that also acted like a magnet attracting global capital when the assets were also rising.
Here is the dollar-yen for this period. We can see the dollar low in November 1988 and then for the last year, the yen began to decline until it shot sharply higher into April 1990 as foreign capital then withdrew. The dollar was a leading indicator for all events because it was reflecting capital flows.
We should see volatility start to rise next week. The Dow is inching upward but is unlikely to exceed the primary target resistance in the 16000 area. A drop back in many markets into September is likely. But keep in mind that the major event should be later 2015 – not right now.
This should be the shift in capital flows and we do have to be concerned that a capital concentration in the USA could send the Dow Jones Industrials to extreme highs. The MAXIMUM target would be in the 43000 level. As crazy as that sounds, keep in mind we did hit the maximum target in 1989 for the Nikkei as that index rose from 18000 to 39000 between 1987 and 1989 precisely as our computer had forecasted.
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