Potential Important Timing Symmetry

The Stock Market as measured by the Dow Jones Industrial Average has rallied over 37% from the    lows of Primary Wave 4 in March. Elliott Wave Analysis suggests the rally from the March 23 low at 18,591.93 should take the market to new all-time highs above the February 2020 high. The current rally should represent at a minimum, the first intermediate wave up of that Primary wave 5, and possibly only the first minor wave of Intermediate wave (1) of the final stages of a centuries long Grand Supercycle bull market. The above notwithstanding, on an intermediate term basis the stock market has completed 5 waves up and is thus due a 3 wave correction.

Potential timing for the low of the imminent corrective wave 2 may be demonstrated from the time symmetry of the cycle degree wave lows of 4/28/1942, and 12/6/1974. A total of 11,911 days elapsed between those two significant lows. The low of the upcoming correction will not be of similar degree as the cycle degree wave lows of 1942 and 1974, but more similar to that of 12/4/1987, a Primary degree wave low. The timing symmetry that is being illustrated does not precisely match wave degree lows, as the upcoming low is only of intermediate or even minor degree, but nevertheless this potential time symmetry is worth pointing out. Should the market recognize such timing, a low would be implied on 7/14/2020. 11,911 Days from 10/19/1987, the absolute closing low of the crash of 1987, is 5/29/2020, too soon to indicate a low. 11,911 days from 12/4/1987, the orthodox low of Primary Wave 4 of Cycle Wave III, is 7/14/2020. It is possible the market could recognize both sets of symmetry, where 5/29/2020 marks the high of wave 1, and 7/14/2020 marks the low of wave 2. The market will dictate the correct answer.

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.