The Stock Market Level To Watch

By: Anthony_Cherniawski

Dana Lyons (Tumblr.com) makes an interesting observation about a little-known index known as the Value Line Geometric Composite Index. In his article, he draws a straight line (red) at 500.00. and says. “This far and no further.”

He misses several points, which I would like to address. First, by drawing a horizontal bar, he misses the fact that the XVG was 27 points under it in 2000 and 23 points above it in 2015. By drawing a line that is peak-to-peak, you get a different picture. In fact, what comes to mind is an Orthodox Broadening Top (I added the lower trendline to complete the formation). This is a slight variation of what you see in the DJIA and SPX.

Second, you may note that it peaked at 519.54, missing the 2015 top at 523.65. An Orthodox Broadening Top allows truncations, which I think this is. It is a sign of failure in Elliott Wave guidelines and in the Orthodox Broadening Top guidelines. It increases the probability of a collapse beneath the lower trendline. In any event, it could still go to the Cycle Top at 529.94 and still collapse. What Dana seems to be missing is the probability that this may be one big fake-out for the investing public, regardless if it goes higher or not.

I think that Dana is a credible analyst and he makes some very good points. However, not being aware of “the rest of the story” creates some false expectations, in my opinion.

Regards,

Tony

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