Stock Market Registers Primary Wave 4 Low

The Stock Market Appears to have just registered the Primary Wave 4 low. Below I present an alternate count that illustrates an Extension for Cycle Wave V from December 6, 1974 low of 577.60. 

Supporting evidence for this count emanates from the fact that a channel encapsulates the important peaks of waves 1 and 3, and the lows of waves 2 and 4. This count is presented on an arithmetic scale, which is consistent with the calculations for price targets conducted on an arithmetic basis. While it is still favored that Primary Wave 4 is correcting the Primary Wave 3 advance from October 4, 2011 to February 12, 2020, this alternate count should be entertained. In any case, it appears the stock market has registered a major low, and new all-time highs should be achieved. On a closing basis, Primary Wave 5 would be equal in length to Primary Wave 1 at 33,519.42. Currently it appears this target will be achieved in 2022. The final wave of the bull market would throw over the upper channel line, before reversing into a true bear market. In 2020 there is widespread panic and fear, and it is quite obvious to the public why the stock market is declining and the world appears headed into a depression: The Coronavirus. This is indicative of a panic stock market crash, not a bonafide bear market. It is simply not how long term tops are achieved. In 1929, the bear market begun with a crash, but it was denied by many observers far and wide. Such is not the case in 2020. Most are afraid for what the future holds. Elliott Wave Analysis suggests a bullish outcome for the intermediate term. 

 The final bull market top, and for some time following, during the initial leg of the bear market, there will be denial by many that a bear market has begun, and there will be optimistic justifications for a continuation of the bull market. Until such time as the market does register it's final high, at the present time, the stock market appears to be in an extraordinary bullish position. 

Taking an Elliott Wave Step Back

The stock market appears to be at or near the low of Primary Wave 4. It was foretasted on these pages in November 2019 that a sharp correction would occur for Primary Wave 4. That has now occurred, fulfilling the forecast, albeit later than projected. Nevertheless, the market is now in oversold territory and, it would appear, amidst all the calls in the mainstream media for the end of the bull market that began on this very day 11 years ago, set up to once again fool the majority of traders and reverse to the upside in Primary Wave 5, the final wave of the bull market. Even amidst all the fear over the Coronavirus of an imminent stock market decline and recession, the technicals are painting a different picture, as is to be expected at a low. It is the opinion of this analyst that capitulation has taken hold and a bullish reversal will commence shortly. Currently, the bull market should still be on track to end in 2022, but updates will be provided on these pages to track developments as they occur should the market dictate otherwise. 

Of particular note should be a pattern that, should this count be correct, have remained consistent in this bull market. Primary Wave 2 traced out a Zigzag, and Primary Wave 4 traced out a Zigzag as well. Intermediate wave (2) traced out an expanded flat, and Intermediate wave (4) did so, too. Should this pattern of lack of alternation by corrections of like degree hold, the market should be tracing out a zigzag for Primary wave 4, of which wave (C) appears to be terminating. The next move should be a thrust to new all-time highs in Primary wave 5, to last many months. Fear is dominant currently in the stock market. Undoubtedly by it's terminus this sentiment will be lopsided, and most investors will be bullish and projecting exponential growth in the stock market. That will indeed be a sign the bull market is in it's final stages and a bear market reversal is due.   

Gold to Resume Bear Market

With all the focus on the Coronavirus and today the sharp drop in equities, few are realizing the selling opportunity in Gold. Those who are watching Gold view it as a crisis hedge, which the market does perceive to be the case at times Regardless of any preconceived correlations. Evidence appears to suggest Gold is about to Resume it's bear market that began in 1980.

Most who are long term bearish on Gold assert the bear market began in September 2011 at $1,923.70. However, it is my observation that Gold in fact was not rising in a bull market from 2001-2011, but a three-wave, counter-trend bear market rally. In Elliott Wave Terms, a b-wave. If I am correct about that, wave c should consist of 5 waves, of which the first and second waves have just completed. Next should be the third wave down, which at a 1.618 relationship would take Gold to $270 per ounce. As hard as that is to believe, my Elliott Wave Analysis suggests that as a target for the next wave of the bear market, which could take a number of years. Wave 4 would then partially retrace the third wave decline, to be followed by a final fifth wave down to complete wave c and the bear market in totality.

Quick Stock Market Update

The Bull Market is in its tenth year, and still appears to be on track to match or exceed the longest bull market on record, from October 1987-January/March 2000. This would portend a final top in 2022. However, developments will be monitored closely should the market top sooner. In the interim, the market appears to have reached important resistance as evidenced by a trendline dating back to 1987. 

In the intermediate-term, the market has likely peaked or will with one more minor new high in Primary wave 3, with a sharp correction due for Primary wave 4, to be follow with one final wave up to end the Cycle Wave V bull market and likely mark a peak that will not be seen again for decades. More detailed analysis to follow soon.

 

The Bull Market Continues

It's been 8 months since the January high in equities. With the historically slow summer season over, the market is now trading at all-time highs, ending the corrective period that has persisted virtually all year. While the high in January may have appeared to mark a blow-off top and end to the bull market than began in March 2009, it was stated here that probabilities suggested a long-term top was not approaching. The initial move down was sharp and swift, in line with the forecast given in January. While the timing of the correction was correct, the degree of a top that the market registered was larger than expected, and therefore a minor alteration to the Elliott Wave Count is necessary. It appears the January high marked Minor Wave 1 of Intermediate wave (5). The DOW has caught up with the other major indexes and has made a new all-time high, and Minor wave 3 appears to be in force. Minor waves 3, 4 and 5 still need to complete before the bull market ends. Because Minor Wave 2 was drawn out in time and took a sideways form, Minor wave 4 is expected to be simple, sharp and short in duration before Minor wave 5 commences to end the bull market. Currently, expectations are that minor wave 4 will occur in 2020. If our timing is on track, Minor wave 5 should then take the market to new all-time highs once again until 2022. After that, the biggest bear market in 300 years will commence.

While at first glance of the major indexes it may seem that price action since January through May was a classic fourth wave triangle, upon closer examination of the Dow Jones Industrial Average, the benchmark index for long-term U.S. investor sentiment, made a new low in Late March on a closing basis, and early April on an intraday basis.

 As per Ellliott Wave Principle, in a corrective wave that takes the form of a contracting triangle, "Wave C never moves beyond the end of wave A, wave D never moves beyond the end of wave B, and wave E never moves beyond the end of wave C (EWP, p. 90)." In this case, wave C moves beyond the end of wave A. Therefore, a triangle can be ruled out. Instead, it is far more likely that the Minor wave 2 correction took the form of a triple zigzag, with a truncated low in May for the third and final zigzag in the sequence. While this may not appear the correct way to label the correction, truncated ends to corrections do occur. Additionally, the move from early to mid April is not impulsive, suggesting it is still a part of an ongoing correction. The third zig-zag, labeled wave Z, then takes the market down in the form of three wave into early May to end  the Minor wave 2 correction. As per EWP, "Sometimes a pattern's end differs from the associated price extreme...in Figure 1-47, the end of wave Y is the orthodox bottom of the bear market even though the price low occurs at the end of wave W (EWP, p.55)." The Dow was the only major index that did not trade higher than their respective February peak for wave X. An argument could be made for wave X ending in March rather than February for this reason. However, wave Y has a proper form of 3 waves when the rally in early March is counted as wave (b) of Y, and the Dow is benchmark index for the U.S. Stock Market, so this labeling appears to be acceptable. 

Now that the Dow Jones Industrial Average has made a new all-time high, greatly increasing the probability that the Minor wave 2 correction is over, we can make some projections for Minor wave 3. Currently, the expectation is that Minor wave 3 will not be as robust as Minor wave 1. Looking forward, Minor wave 5 should be even weaker in both participation, price advance and slope than Minor wave 3. Minor wave 5 will be tracked in real-time as it unfolds, but for now, Minor wave 3 appears to be impulsing. Minuette wave (i) progressed in a simple 5 waves into a May high of 25,086. Minuette wave (ii) then took the form of an expanded flat into late June, terminating at 23,997. Minuette wave (iii) is projected to travel 2.618 times the length of wave (i), yielding a target of 28,068 before Minuette wave (iv) unfolds. Minuette wave (v) should then carry the market to new highs once again to end Minute wave i of Minor wave 3. In the near-term, taking 1.618 times the length of Subminnuette wave i yields a target of for Subminuette wave iii of 27,538. 

Elliott Wave Structure Analysis of Markets, and other Macro Opinations

It's 2018, almost 9 years into the current stock market rally that began in March 2009. 2017 saw record low volatility in the U.S. Stock Market, and record levels of complacency and optimism among investors. 2017 marked the first year I did not write about markets since the inception of this blog in November 2009. I felt the need to take a break and let the market do it's thing, as, despite the probabilities assessed in recent years, the great bull market reasserted itself. Incredibly, rather than reversing the uptrend since 2009 and resuming the larger bear market that began in 2000, the market bottomed in 2016, and has accelerated to the upside, amidst a wave of optimism not seen since the 1990's. Taking a step back, however, reveals underlying issues with long-term market structure and has decidedly bearish implications for the long-run performance of the U.S. and Global Stock Markets. Whenever the market does something unexpected, it's wise to zoom out and take a look at the big picture.

As discussed before, in 1974, amidst high inflation and a stagflationary period in the economy, the stock market registered a Cycle Degree low in Elliott Wave terms, and a generational low, and historic buying opportunity, as P/E ratios were in the single digits, and dividend yields were at levels consistent with a secular bear market bottom. The same was true in 1982, coinciding with a disinflationary recession following the peak of inflation and the orthodox peak of the Gold and Silver bull markets. 1982 marked the end of the great secular bear market that had been ongoing since 1966. Following that low in August of 1982, the market took off to the upside in what would become the longest and greatest bull market in history. In 1999, the market peaked in terms of Gold, and in inflation adjusted terms. It appeared to be the end of the great bull market that had at the time, already run much further than expected by traditional Elliott Wave Analysis. That peak in the market was followed by a deflationary secular bear market, which saw unprecedented credit inflation, then deflation as the secular deflationary forces imposed limits to economic growth. The extreme credit inflation following the 2003 orthodox lows in world stock markets was associated with the bear market rally in nominal terms into 2007, which preceded the biggest market collapse since the 1929-1932 Supercycle Bear Market. Despite what appeared  as a certain indication the great bull market was over, the 2009 low only turned out to be wave (C) of a flat correction from 2000. The market has since confirmed an impulse to the upside, indicating a bull market. The only topic up for debate now is, exactly what degree the 2009 low represented. Broader macro considerations will be expanded upon in later posts as data continues to become available,  but for now, one consideration is the continual and persistent slowing of inflation, over time.

Commodities and Deflation

In 1980, coincident with the peak in inflation, the Gold market registered an orthodox top, that in my opinion, has not been exceeded. My thoughts on the matter can be found by Clicking Here. Others may disagree, but I think the case is strong. Nevertheless, I digress. What is not up for debate, is that inflation on the whole, has been slowing since 1980. The robust bull market of the 1980's and 1990's, coincided with disinflation (slowing inflation), and was foreshadowing a period of deflation, just as in the 1920's, preceding the Supercycle bear market and Depression of the 1930's.

Below is a chart of producer prices during the 1920's bull market and proceeding depression. Prices made a lower high in conjunction with the final bull market peak.

Current Chart: 

Here in the current time period, prices declined in conjunction with the deflationary collapse in 2008, but moved to a new high in 2014. The current chart that better illustrates the analogy, though, is the chart of the Reuters/Jefferies CRB Index of Commodities, a global measure of commodities, and in turn, over time, trend in inflation and deflation. As is evident on the chart, prices bottomed in early 2016 in conjunction with the stock market, and have rallied off those lows. Similar to the 1920's, I expect this chart to peak at a lower high in conjunction with the final  Grand Supercycle Bull Market top in stock prices.  Inflation should pick up as unprecedented optimism acts as an impetus for business owners to expand their businesses, and the perceived benefit to tax-cuts and other regulations are cut. The key though, will be a peak of inflation and commodity prices at a lower high, just like 1929. The ultimate outcome circa 2022, should be a resumption of the long-term bear market in commodities, and this time, unlike 2008, an outright deflationary depression. 

I will provide an update to the socionomic implications to politics and economic policy  more  in later posts, but for now, suffice it to say, the appearance of expansionary policies such as tax cuts and regulation reductions, is self-fulfilling as social mood trends more positively, the stock market rises, and business owners expand hiring and consumers increase spending. In the end, the real driving force, and all that matters with respect to markets and economies, is mass psychology and social mood, despite strong and widespread opinions to the contrary.

Given recent market developments, it might be tempting to label the lows of March 2009 the end of a great bear market, and the beginning of a new generational bull market in equities and economic expansion. However, upon closer examination, this argument does not hold up. Below is a chart published by Doug Short over at Advisor Perspectives, plotting the monthly average of daily closes, and creating a regression channel, which illustrate the move above and below the mean regression line during bull and bear markets. As is evident on the chart, previous generational lows, namely, 1932, 1949, and 1982, all experienced moves below the mean regression commensurate with the bull market move that preceded it.2009 however, did not, registering only a 17% move below the mean regression line. Given the 2000 top moved 136% above the regression line, far exceeding any move in history, it would be reasonable to expect an undershoot commensurate with the size of that bull market. Historically speaking the absence of this condition, makes the supposed secular bear market low, questionable at best.

If 2009 was not a generational low, then what did it represent? It would appear, as far fetched as this sounds, that the bull market from at least 1932, and likely from 1974, never ended. That would mean the 2009 lows marked a low of either Primary or Cycle Degree. Below are the top interpretations.


Primary Long-Term Elliott Wave Count:

Elliott Wave Structure thus far for Primary wave 5:

Alternate Supercycle degree Interpretation:

Despite the extremely bearish long-term implications of The Elliott Wave Principle, momentum analysis suggests extreme buying pressure, and thus a long-term peak is not imminently approaching.

High readings on Momentum Indicators can somtimes be interpreted as a sell signal, however, in certain cases, it indicates extreme buying pressure and optimism, and rather than indicating an imminent reversal in the market, can indicate a continuation of the current trend. That being said, the RSI reading at 99%, is extremely high, and in my opinion is a testament to a final burst of optimism. Nevertheless, the analyst should not assume this means a crash will necessarily follow. As is evident on the chart, what is likely to follow is a relief of the overbought readings, and divergences as the market keeps advancing to it's final bull market high. Each bull market is different with respect to the RSI profile, as is also illustrated on this monthly chart above of the Dow Jones Industrial Average. We might therefore expect that while there are likely to be divergences, the setup at the final bull market peak will not look like 2000, or 2007, but unique, entirely dependent on the Elliott Wave sturcutre that the market traces 

Shorter-term,  the market appears to be completing the rally that began in August 2017. Given the relatively low degree of the top, however, only a shallow correction is expected. 

Although 2016 fits well as a fourth wave, there are some indications that it did mark a higher degree low than 2011, which would imply the 2014-2016 correction, in Elliott Wave terms, was correcting the entire move from 2009. While this doesn't appear likely given the shallow nature of the correction at only 12% from absolute high to low (as opposed to orthodox high to low), in order to be objective,  the possibility should be entertained. Below is a chart illustrating this possibility, though the chart is not drawn to scale, and should not be taken as a price projection. Under this interpretation, what is a possibility from a price perspective, however, is that, given the current parabolic nature of the rally, intermediate wave (4) is sharp, sets up severe momentum divergences, and intermediate wave (5) ends up being relatively short-lived, in time and/or price.

Another consideration is the likely occurrence of the 34-year cycle low, a Fibonacci duration cycle, and the last occurrence of which in 1982 marked a very significant long term bottom. This time around, I think the cycle will peak in a highly left-translated fashion, or, put another way, the bull market will peak long before the mid-point of the cycle, leaving many years for the ensuing bear market to unfold.

The market is impulsing to the upside again, that is without question. The question that remains is, how far does the bull market go before the whole Grand Supercycle degree wave of Optimism is finally over? As R.N. Elliott himself stated, time is the least reliable when conducting Elliott Wave Analysis. Nevertheless, given the Fibonacci duration of stock market rallies- case in point, 1921-1929 8 years in duration, 1932-1937 5 years in duration, 1982-1987 5 years, 1987-2000 13 years, 2002-2007 5 years- Since the bull market is now in it's 9th year, this analysis suggests a 13 year bull market, and thus a top in the year 2022. Due to the unprecedented nature of the bull market, and it's extreme extent and duration, it is reasonable to give that time projection some leeway. If the market tops in 2021 or 2023, we can consider that Fibonacci time projection fulfilled. One of the characteristics of bull market tops in equities is momentum divergences. Given that none exist on a long term basis at the moment, it is not likely the market is topping now. Regardless of the exact timing of the ultimate peak of the bull market, the stock market, and no doubt other credit markets, should be running into severe trouble by 2021, with some sectors topping early, as divergences build to set the market up for the final bull market top. The proceeding bear market will be of Grand Supercycle degree, and last for decades.

This is an exciting time for the market, and 2018 will not be a continuous lull in volatility as in 2017. Correction will be sharp and fast, as the market continues to trace out Elliott Waves into the final bull market top. I will provide updates on both a short and intermediate term basis, as conditions warrant or as time permits.

Update on Markets, Other Developments and Observations

With the Presidential Elections now over, many are speculating as to what it will mean for the future of the U.S. and Global Economy. But those who follow the Elliott Wave Principle and its resulting real-time implications know the correct framework with which to interpret these events, and therefore are more likely to be correct at major turning points. It would appear that the current juncture is one such occasion. This is a financial blog, so I refrain from expressing political opinions, but I'll make an exception in this case, as the current political environment is too exciting not to comment on as it relates to social mood and the implicated Elliott Wave position of the stock market. While it is normally logical to assume that the election of Donald Trump will change the course of the United States of America, the Elliott Wave model and the new science of Socionomics teaches us that the election of Donald Trump, rather than being a cause of anything, is actually a result of the wave position of social mood, and therefore indicative of the wave position of the stock market and economy. Once this causal link is established the question still remains, is the election of Trump bullish, or bearish for the future of the U.S. Economy? The answer multi-faceted and complex.

While Pro-Trump voters are elated with the election of their candidate, and the biggest political upset in modern election history, some are also going out on a limb to say that Trump is another Ronald Reagan, and this is just like 1982. At first glance, it might seem tempting to adopt such a viewpoint- both individuals are non-career politicians, and appear to have the best interests of the people at heart, rather than cronies in business and politics, as is the case with many other ordinary politicians. However, it is a mistake to compare the two as if history will repeat, or even rhyme as it often does. The essence of the Elliott Wave Principle tells us that markets and economies repeat history in a fractal form rather than a linear form. This is an important distinction because it prevents the analyst from making the fatal error of assuming, in simplified terms, that the outcome in the next period will necessarily be equal to that of the current period. In forecasting, this method is called the naive model of forecasting- it has that name for a reason. The analyst would be remiss if he assumed outcomes repeat from one instance to the next, and by association, assuming that trends are linear in their nature. Whereas many forecasting techniques in business are not forward looking, and rely on past data to predict future outcomes in a linear fashion, the Elliott Wave model is one of fractal repetition, meaning trends are self-similar at all degrees. The perspective of an Elliott Wave analyst is one of being able to anticipate not only change, but change in trend, at exactly the point at which most observers would be caught off guard. Elliott Wave analysts have a leg up from other disciplines for this reason. I said all that to say this: It is dangerous to assume this is 1982 all over again, first and foremost because this is not 1982, it is the year 2016.

Aside from the fact that outcomes change from one period to the next, in this case 1982 versus the current juncture, 2016, there are many other vast differences between 1982 and 2016. Most people who would agree with this statement would give all the fundamental  economic differences, and many are quite valid, between the two junctures, such as the level of national debt, household debt-to-GDP ratios, labor force participation rate, etc. But I'll spare that discussion in this piece, because the technical evidence that is available stands on its own.

First and foremost, in 1982, the P/E Ratio on the Standard & Poors 500 index on August 1, the month of the final secular bear market bottom in real terms, stood at 7.97, with the dividend yield at 6.23%. This is historically consistent with secular bear market bottom characteristics of undervaluation in equity shares and high dividend yield. As of February 1, 2016, 10 days before the low of the year in many equity indices, the S&P 500 P/E ratio stood at 22.02 and the dividend yield was 2.27%. The valuations at the 2016 bottom are simply not consistent with historical secular bear market bottoms. Therefore one can say, 2016 was not a value low, and thus not the end of a secular bear market. Another major difference between 1982 and 2016 is the fact that in 1982, manic activity in financial markets was nowhere to be found, as investors were highly pessimistic about the future of the stock market and economy. One might argue that the public is pessimistic now, and they are, but only to a degree. That will be addressed next, as there is quite an interesting dichotomy that appears to be unfolding now that also provides evidence. But first, some charts of common, well-known companies and indices:

Amazon.com, Inc.

Amazon.com, An internet retail company, has advanced 2,082% since December 2008, close to the low of the last bear market in equities. This is a parabolic advance and indicative of speculator fervor and optimism, not undervaluation and pessimism. Additionally, a P/E ratio of 169 is extremely high and again indicative of extreme optimism.

Apple, Inc.

Apple, Inc. a computer, cell phone and electronics manufacturer, has advanced 1,104% since January 2009. With a P/E ratio of 13.22, the company is not anywhere near as overvalued as Amazon.com, however Apple's dividend yield of only 2.06% is hardly attractive. Here again, a major company, in this case the biggest company in the world by market capitalization, has run up in a parabolic fashion, something that should not be occurring at the beginning of a new secular bull market. 

The Priceline Group Inc.

The Priceline Group, an Internet Travel Company, has advance a mind-blowing 3,446% since October 2008. It's P/E Ratio is currently sitting at a lofty 37.60. Here again, this is a company that has been bid up by investors to extreme levels, further indicative of manic levels of optimism in the financial markets.

Amex Biotechnology Index

These stock manias are not isolated examples, either. The Amex Biotechnology Index has advanced 778% since November 2008, again illustrating the manic behavior of stock prices.


If these examples aren't convincing enough, look no further than the Dow Jones Industrial Average itself, which, at the February 2016 low, was 31.9% above the level of the start of the secular bear market in January 2000. Compare that with the 1982 low, which was 23.6% below the level of the start of the secular bear market in February 1966. Additionally, the nominal stock averages registered new all-time highs in 2013, a full three years before the supposed end of the secular bear market here in 2016, amidst a rally that is even more parabolic than the rally in the late 1990's. This again further serves to confirm the terminal nature of the rally in equities.

Given the weight of the evidence, from individual stocks and indices staging parabolic advances since 2009, the lack of a value low in 2009, as well as the continued move to new all-time highs all throughout the supposed end of a secular bear market, which would be labeled at least one degree higher than the secular bear market of 1966-1982, the stock market is acting much more like the end of a secular bull market, than the beginning of one.

The Bond Market

Bond prices appear to have finally peaked, yet another beneficiary of the great bull market. The 35-year rally in government bonds, and decline in yields, has been coincident with the rise of most other assets since 1982, when Primary wave 3 of Cycle wave V in the stock market commenced, and the financial mania that is incredibly still ongoing to this day began. While many believe bonds move opposite to stocks, on a long-term basis that isn't true, and they have for the most part, both been in an uptrend since the early 1980's. The peak in the bond market is being interpreted by some to mean money will begin flowing out of bonds for many years, and into equities, and that this is therefore bullish for the stock market. That thinking is much more likely to be representative of investors justifying their optimism at a major peak, then an actual likely scenario for the future. The rise in bond yields likely represents both a burst of optimism near a peak with a widespread belief that business activity will pick up along with a demand for loans, which would then justify a rise in the price of money, interest rates, as well as the stealth beginning of a bear market in debt instruments; namely, most corporate and municipal debt as the economic depression intensifies, and entities both public and private are forced to declare bankruptcy and default on debt obligations, rendering many bonds worthless or nearly so. While the U.S government itself may not declare bankruptcy, the rise in long-term interest rates is more likely to be indicating investor fear of default, and a move out of bonds, than a sustained trend of economic optimism. The decline in bonds, as well as a myriad of other markets that have been expressions of long-held optimism, is likely to go from orderly, to disorderly as pessimism begins to dominate diverse financial markets all over the world. The Federal Reserve is also likely to be forced to raise raise their own target rates during a financial collapse, as the bond market demands ever higher rates of return, just as during the 1929-1932 collapse. Built up excesses over the past few decades are about to come unwound, and it will result in a total collapse of financial assets around the world. Nevertheless, topping is a process, and in the meanwhile, while the last of the financial markets top out, the current mix of optimism and pessimism as reflected in the rise of bond yields, is likely to remain until the U.S. stock market registers a final high. Additionally, this market psychology hybrid dynamic that appears to be occurring in the bond market, is not limited to the bond market by any means. It is indicative of the end of the giant Grand Supercycle topping process that began in 2000, and a transition from bull market psychology, to bear market psychology.

The Current Optimism/Pessimism Duality 

One may come to the logical conclusion that this has been a secular bear market given all the turmoil around the world and in the U.S. since 2000, but given the weight of the technical evidence, question that thesis. The answer is, it would appear, while the rest of the developed world has been in a clear secular bear market, with many European equity indices nowhere near all-time highs, save for Germany, the U.S. has been the last holdout, and is the last one to top. This stands to reason, given that globalization and the resulting effect on world economies has been mainly a function of the agenda of the U.S. Government and Corporations. Put another way, the driving force behind the economic expansion of the great secular bull market in western civilization, globalization, is centered right here in the United States, so it stands to reason that the U.S. economy would be the final holdout in the giant expansion that is Cycle Wave V of the supercycle bull market.

The election of Donald Trump, at least in so far as the electorate believes, represents a repudiation of that policy. Whether or not he actually carries out that agenda is irrelevant to this analysis, because what is being examined here is the election of Donald Trump as it relates to, and indicates, the wave position of the United States. Trump appears to be both an expression of optimism, as well as pessimism. A populist president has not been elected in many, many decades, and it's clear there are big changes afoot in U.S. politics. People are tired of establishment politics and corruption, and the election of Donald Trump brings this phenomenon clearly to light. On the one hand, arguably the biggest political shakeup in U.S. history indisputably represents negative social mood and upheaval, common characteristics of a secular bear market. Also of note, is the fact that all throughout the supercycle bull market that began in 1932, an establishment politician has been president. Now, that mentality has been repudiated by the american public. This is something that has not occurred during the entire bull market. The shift in mood that has brought on this change in politics, may also be indicating the end of the supercycle bull market that accompanied establishment politics. As market market technicians, we look for changes in character to indicate a change in trend before most other analysts recognize it as such. This change in U.S. politics certainly qualifies. From a social mood perspective, while it may appear at first glance that the election of Trump is representative of upheavel and bear market mood, on the other hand, the election of Donald Trump amidst his promises to "Make America Great Again", and the sudden burst of optimism about the future of the country this has appeared to invoke, could well be interpreted as a contrary indicator, and indicative of a top in equity markets, rather than the beginning of a new secular bull market. Put another way, this type of new-found hope was not present in 2009, at a significant stock market bottom, but now that the market has rallied for 7 years, people are finally optimistic that good times are coming back. Given the imperative that the public is always wrong, and can therefore be used as a contrary indicator, it would appear the current euphoria and new-found hope, especially given the weight of the technical evidence in the stock market, is more indicative of a terminal move, than of the beginning of a new bull market. This combined with the underlying rot of the debt-money system, extreme overvaluation in financial markets, and the pessimism and upheaval that is clearly taking place on the streets, with some chanting Donald Trump is "Not My President", suggests a major shift is coming. Further conflicting evidence can be found in arena of scandals. Wells Fargo is in the spotlight as it is being revealed that employees of the bank, in an ill-fated attempt to meet their quotas, created fake accounts in customer's names, with those same customers being charged bogus fees for an account they didn't open. This type of fraud happens all the time, but it's during periods of negatively trending social mood when they are exposed, as people focus on the negatives more than the positives, just as there are more sellers than buyers in the stock market. The Wells Fargo Scandal is clearly indicative of negative social mood, but in another instance of social mood sensitive outcomes, people have spent a great deal of time focusing their attention on Hillary Clinton and the Clinton Foundation as criminal entities. But, amidst all this supposed pessimism, she wasn't even prosecuted. More recently, with the market trading at all-time highs, the now President-Elect Donald Trump said he wouldn't even carry out his campaign promise of hiring a special prosecutor to investigate and possibly jail Hillary. If mood were decidedly bearish, Hillary would likely be well on her way to jail already, and yet with all the time and energy the public has spent on her, she appears, for now, to be off the hook. When social mood turns down for good, there is a very real possibility Hillary will be investigated once again, and prosecuted. It is social mood and perception that is driving all of these social and political trends, not objective analysis and reality itself.

While it is tempting to draw parallels between Trump and Reagan, and declare a new era is upon us, the data cannot be ignored, and the very real possibility of a financial crash and economic depression must not be taken lightly. This being said, because Social Mood has been declining for well over 16 years now, since the first quarter of 2000 when the Dow priced in ounces of Gold topped, and the whole global secular bear market began, it would not be surprising to see a divergence at the ultimate low of the supercycle bear market between social mood and stock prices. It is quite possible that the social upheaval that lead to the election of Donald Trump is setting up for an upcoming low in social mood. While the financial markets are imploding, and the economy is tanking, it would be with the understanding of the american people that what is collapsing is the old way of doing things, and it would be a welcome change, again indicative of the repudiation of Keynesian economics, crony capitalism, and establishment politics. This divergence where social mood would begin a basing pattern, while stock prices and the economy collapse, would serve to balance out the divergence that has occurred on the other side, where nominal stock prices have remained elevated, yet social mood has clearly deteriorated for many years now. Also supporting this scenario is the notion that the coming Supercycle collapse in stock prices is only supercycle wave (a) of a larger, Grand Supercycle bear market, so there may not be a basing process with stock prices, as there was after the 1929-1932 Supercycle collapse, and the 1966-1974 Cycle degree bear market. From a secular perspective, then, we can say that while stock prices are approaching a major price peak, this leg of the secular bear market that began in 2000 is getting very mature in terms of time, and a low might therefore be approaching, both in the economy and the stock market, sometime in the early 2020's. If that turns out to be correct, then needless to say our new President would be in for quite a wild ride in popularity. Perhaps another pertinent observation is that as the country approaches a Grand Supercycle peak, it is fitting that Trump, who is the epitome of everything the United States has represented- wealth,  hard work perseverance, discipline domination, and victory- is president at the very peak of it all. The question is, will he also be the justification for a turnaround in both social mood and financial market stability at the final low. People blame or credit the sitting president with whatever happens in the macro picture, so Trump's legacy will depend on whether the market tops and collapses in 2017, or after some years of stronger economic growth. If the market decides to extend even further beyond 2017, Trump would likely be re-elected and the crash would come in his second term, rather than his first. While people will credit or blame Trump for the economic outcome, Socionomists and Elliott Wave Analysts  know better, and we will be analyzing the market, social mood and social action in real-time, without political bias.

Stock Market Elliott Wave Picture

One possible scenario for the end to the bull market, is an ending diagonal, which should ideally finish sometime in 2017 to mark an 8-year bull market, the same number of years that attended the 1929 Supercycle top. Short-term, the market is extended and likely to correct in wave b of 3. If this count is correct, the market will continue to push higher to complete the ending diagonal, with waning momentum, into the final high in 2017, at which point the market will crash, to kick off the Grand Supercycle bear market in nominal asset prices, just as it did in 1929. Except, this time the market is about to register an even larger degree top, so I would not be surprised to see a swifter collapse. Either way, it will be quite a sight to see.

If I am wrong in my analysis of this election cycle and the resulting implications for the stock market and economy, so be it. But what may appear to be one thing on the surface, may actually be another entirely when properly analyzed. The evidence is undoubtedly mixed, but based on the data at hand, this is much more likely to be a final rally of the great bull market, than the beginning of a new secular bull market. Either way, there are big changes coming, and volatility is about to pick up in a big way, financially socially and politically. It's important to position portfolios and assets now accordingly.