by Avi Gilburt, ElliottWaveTrader.net
“You can fly, you can fly, you can fly” – Peter Pan
It seems that, once again, the stock market rally has taken most by surprise. Yes, the US stock market has been making new all-time highs, and everyone seems to be scratching their heads. In fact, I believe we recently even witnessed a Dow Theory confirmation of this stock market rally.
The common recent expectation was that a Trump win was going to crash the markets. In fact, when the market headed higher against a particular analysts’ expectations, he ridiculously claimed that the current equity market rally is a “manufactured rally” for the sole purpose of allowing big money to “escape the market,” only for Obama to then cause a big crash in the stock market before Trump’s inauguration in order to “hand him as big a mess as possible.” You just can’t make stuff like this up. And, amazingly, there are investors that follow this “analyst,” but clearly with a lot less money now in their pockets.
This certainly is quite a “mess” we have on our hands, isn’t it? Well, for those of us at Elliottwavetrader.net, we don’t call it a “mess,” we call it a “profit” since we have been looking to the long side in the stock market.
But, week after week, especially on gold-focused websites, all we hear is about how the stock market is going to crash. Everyone comes up with their own reasons as to why the market should not be as high as it is today, and have missed out on one of the best bull markets in history.
So, what do they do? Do they re-assess why they have been wrong? Do they try to understand why their analysis methodology has been useless in the stock market? Do they look for a potential way to profit from the stock market? Heck no.
So, how do they justify the market rally? Well, of course, it is due to manipulation and the PPT (Plunge Protection Team). So, let’s ignore the fact that the PPT was supposedly set up to rescue the market from “crashes” rather than take it to new all-time highs. That alone makes their PPT “excuse” ridiculous. But, that is dealing with reality, and I am not sure any of the analysts who blame the PPT are interested in reality more than they are interested in trying to come up with a reason as to why they are always wrong about the stock market and selling you their service. And, if you want to know more about the PPT, I have written about the facts of the PPT in this article from years ago:
I find people’s perspective about analysis quite interesting. They are willing to follow an analyst as long as that analyst will say something that makes sense to them. It does not matter if that analyst has been successful in his prognostications about the market or not. Normally it is confirmation bias that they seek, not accurate prognostication. After all, misery loves company. For if accurate prognostication is what they seek, then they would run from anyone who uses the PPT as an excuse as to why they have been wrong and wrong so often.
Back in mid-January 2016, as the market broke upper-support and was beginning the pullback we then expected, I wrote an article on MarketWatch trying to explain to people why they are “naturally” bearish of the stock market:
But, I also have been warning investors not to allow their naturally bearish tendencies to scare them away from a stock market that will likely target 2300 and higher.
You see, we have been bullish all year since February. While the pullbacks we have seen were completely expected by us during 2016, and were not preludes to the big crash as most have been led to believe, the stock market was clearly set up to head to much higher highs this year (and, still likely to continue into 2017). You see Brexit, Trump, Italy, and any other exogenous event have mattered not to the market. The sentiment patterns have clearly told us to be looking higher in 2016 rather than to be looking for a stock market crash.
And, even though we had that pullback in the fall of 2016 – which we expected – the market bottomed right into the heart of our target zone, which then had us looking up to new all-time highs, with our first target region in the 2280-2300 zone. And, amazingly, we were able to come up with this analysis without the use of the PPT.
So, if you would like to come over to the “dark-side” of the market where we don’t believe in the Tooth Fairy, Peter Pan, and the PPT, all you simply have to know is that 2220SPX and 2100SPX are your long term supports for this stock market.
As long as the 2220SPX now holds on all pullbacks, we are heading up to the 2500-2600SPX region. A break down in the next month or two below 2220SPX should take you to the sidelines for a bit. And, should the market break the 2100SPX region, then that could usher in a larger degree bear market, as deep as the 1100SPX region.
If we do head up towards the 2600SPX region into the end of 2017, then I believe we will likely come back to re-test the 2100SPX region again. Should it hold, then the stock market will likely rally back up to the 3000 region before the major crash is seen. However, should it break, then we have likely begun the long bear market that everyone has been expecting.
So, yes, the bigger bear market is coming. And, it will likely be worse than what was seen in 2008. But, there is still a lot of potential for this market to run much higher than you have been led to believe. As Keynes noted, the market can remain irrational longer than you can remain solvent – especially if you continually attempt to short the market before a bear market is proven to have taken hold.
Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.