By Avi Gilburt, ElliottWaveTrader.net
For those of you that have followed me through the years, you would know that I utilize Elliott Wave analysis to track the markets I follow within the context of both their smaller and larger cycles. And, to that end, you would know that I am neither a perma-bull nor a perma-bear. Rather, I see the market as it is, and not as I believe it should be.
For example, when everyone was getting very bullish in late 2015, I warned that we were setting up for a drop from the 2100 region back down to the 1800 region. Yet, I also warned that investors should not get too bearish, since that pullback will set the market up for a multi-year rally pointing to 2600+ in the SPX.
If you remember back in early 2016, most analysis you were likely reading was preparing you for the inevitable market crash that everyone seemed to be certain was just around the corner. But, our Elliott Wave analysis put the market in appropriate context, and told us that we likely had several more years to come before the bull market which began in 2009 will likely end. I mean, have you ever experienced a market crash which was expected by the masses? Markets just don’t work that way.
As Professor Hernan Cortes Douglas, former Luksic Scholar at Harvard University, former Deputy Research Administrator at the World Bank, and former Senior Economist at the IMF, noted regarding those utilizing “fundamental” analysis to identify when a market swoon will occur:
The historical data say that they cannot succeed; financial markets never collapse when things look bad. In fact, quite the contrary is true. Before contractions begin, macroeconomic flows always look fine. That is why the vast majority of economists always proclaim the economy to be in excellent health just before it swoons. Despite these failures, indeed despite repeating almost precisely those failures, economists have continued to pore over the same macroeconomic fundamentals for clues to the future. If the conventional macroeconomic approach is useless even in retrospect, if it cannot explain or understand an outcome when we know what it is, has it a prayer of doing so when the goal is assessing the future?
Well, I am still of the opinion that we likely have a number of years to still run to much higher levels in the S&P 500. In fact, there is potential for this market to even exceed the 4000 mark in the early 2020’s before this bull market comes to end. Remember, the market will still have to rally far enough to convince even the most die hard of bears that this bull market is unstoppable.
However, that brings me to the point noted in the title to this article. You see, once this bull market convinces the masses of its invincibility, only then will it top in the early to mid 2020’s. And, when everyone is certain of the invincibility of this bull market, it will set us up to be heading into a period of time which will likely be worse than what we experienced in 2008. In fact, it can rival the period of time marked by the Great Depression.
For those that understand the context of the overall long-term market structure, the years between 2000 to 2009 actually represented a 4th wave sideways consolidation. That led to this 5th wave we are currently experiencing, which still likely has several more years to run. However, once this 5th wave does complete, we will likely enter into a 4th wave correction which is one degree larger than the correction experienced between 2000-2009. That means that the correction we potentially will begin in the mid to late 2020’s will likely be worse than one we experienced into 2009. In fact, the stock market can correct from levels exceeding 3500SPX back down to the 1000-1300 region. Moreover, that correction can last 10-20 years, as you can see from my long-term chart.
But, that does not mean you should be donning your tin foil hats, stocking up on water and dried food, and heading into your underground bunker just yet. Remember that knowledge is power, and if you have this knowledge of what potentially is coming, you can use the final years of this bull market to prepare for the largest bear market we have seen since the Great Depression.
While some of you will continue to view my analysis methodology as something akin to voodoo, I can assure you that it is well grounded in mathematics, and has been quite accurate for many years, which can be confirmed by those who have followed us closely during that time. The fact that we have over 450 money manager clients in the 6 years since we have been in business is a testament to how well we have prepared our clients for the machinations we have seen in the overall markets we follow.
And, as Ben Franklin stated: “By failing to prepare, you are preparing to fail.”
So, it is your choice. You can choose to continue to ignore our analysis and believe the market moves rather haphazardly as it is seemingly driven by the events of the times. You can choose to ignore how accurate our analysis has been regarding the turns we have been seeing in the markets for years. And, you can choose to continue reading analysis that ineffectively and hopelessly attempts to explain what the market did yesterday by fitting their square pegs of linear reasoning into the round holes of non-linear market action.
But, I can assure you that when the market will be topping out in the early to mid 2020’s, you and the great majority of the market will be wildly bullish, and assume that we have entered a new paradigm during which we will not see another recession again, much the less a period of time which can rival the Great Depression. Such a poor economic environment will be the furthest thing from your mind as the market hits heights that were unimaginable to you only a few short years ago. This is simply how markets and market sentiment have worked for hundreds of years.
Based upon much research, it is quite clear that, just like history repeats itself, so does the publics actions and reactions when it comes to long term trends in the stock market. Yet, our mathematically based analysis methodology focuses on being able to identify those long-term trends in the market, and has provided us with early warnings of the changes in both the smaller degree and larger degree trends.
Our model suggests that this bull market can still last into the early 2020’s (even though we will likely see a 20-30% correction kicking off in 2019 before we begin the final rally to end the bull market). However, once that last rally ends, you will need to be prepared for something that may seriously rival the Great Depression.