In studying Dow Theory, one will find that bear markets consist of 3 phases. A Phase I decline, followed by a rally separating Phase I from Phase II. What follows is the Phase II decline, worse than Phase I. The market then stages another rally that serves to separate Phase II from Phase III. Then, the final portion of the bear market, Phase III, unfolds. I need to make clear that Elliott Wave and Dow Theory have absolutely nothing to do with each other. However, I believe they can be used to complement each other. The following chart has both Elliott Wave and Dow Theory Labeling on it. Each 4-year cycle low is marked with a Green "4", along with the appropriate Dow Theory phasing. Being that the last 4-year cycle low was 2009, the next one should ideally be sometime in 2013, and should carry price below the March 2009 low. Such a decline would likely find support at the lower trend line to mark the Phase II Low. A rally would then ensue, which I label Primary wave 2 up. I believe an extremely left-translated 4-year cycle rally will then follow. What is meant by "left-translated" is that the market peaks prior to the center of the cycle. This holds greater bearish potential as it leaves more time and thus greater downside price damage potential in the cycle, from low to low, for the market to decline. I believe the Phase III decline will consist of the worst portion of the bear market, and in Elliott Wave terms Primary waves 3 down, 4 up, and 5 down to complete cycle wave c and the bear market. The cycle wave c and supercycle bottom should be accompanied by good valuations typically found at true bear market lows.
This will be the buying opportunity of a life time. This mapping is not to scale in time or necessarily price, purely speculative, and is only a guess. Either way, I do not think the worst is over and the remainder of the bear market will be much worse than the 2007-2009 decline. Safety is the key during this vicious bear market. Those who remain prudent will have the capital to invest when the bear market is finally over.
Note: For more complete Elliott Wave Labeling, please see my October 8, 2012 post.
Note: Please visit www.cyclesman.net for Tim Wood's cycles and Dow Theory analysis. He is among the best and most objective technical analysts out there.
Any thoughts as to if Phase I decline was after the Tech bubble, rally was the housing bubble, and the Credit Crisis in 08/09 was phase II... now we are in rally seperating phase II from phase III. And the coming decline will be the worst?
ReplyDeleteYes, that is a possibility. However, as Tim Wood points out, the bull/bear market relationships would have let the 2009 low mark the low for this bear market. Since none of the common denominators that are seen at bear market bottoms were seen at the 2009 low, and the 2007-2009 decline is much too short to correct a 70+ year Bull Market, odds favor the Phase I low was March 2009.
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