History doesn’t repeat itself, but it does rhyme
As a kid, a trip to the midway at Ponchartrain Park in New Orleans meant taking a ride on the Zephyr Rollercoaster. You had to, or look like a chicken to your buddies. A Zephyr ride began with a series of medium sized climbs and drops that segued into a dozen sickening high speed turns, lurching the riders from side to vomit inducing side before finally making the long creepy crawl to the big top for a death defying plummet back to earth. Best thing about the Zephyr was that it was over quick and I wasn’t going to prove anything by riding it again that afternoon.
For the last four years, the stock market has been on a long, creepy crawl up to a big top and, for the umpteenth time, it looks poised for a kamikaze style crash.
The basis for this forecast is that, regardless of the amplitude of the rise, a five wave Elliott Wave bull market advance always regresses to the area of the fourth wave of one lesser degree of trend. The market has now completed a Grand Supercycle degree bull move, and the fourth wave in the Supercycle bull market (one degree lesser in trend) was the decline from Dow Jones Industrials 396 in 1929 to the low of 41 in 1932.
This regression is the most reliable relationship in the Elliott Wave Principle. For that reason, the target of below 400 has been in place ever since Ralph Elliott correctly announced that a bear market ended in 1932, and, when everyone else was extremely bearish, made the forecast no one believed, that a great bull market was underway. He further demonstrated from past history that, at the end of the bull move, a bear market would ensue that would bring the Dow Jones industrials all the way back to within the area of the 1929-32 bear phase.
Important Elliott Wave based forecasts have two things about them that make it unlikely that anyone other than an Elliott Wave analyst will believe them, much less act on them: 1) They are totally contrary to the sentiment of the moment–uniformly bullish, in this case, and 2) The magnitude of the forecast is beyond the experience of anyone living. The most recent Grand Supercycle bear market occurred between 1720 and 1722.
The orthodox Elliott Wave top of this Grand Supercycle bull market occurred in 2000. The vomit inducing lurches since then, including rallies to new highs, have all been a part of the bear market. Several times in the past thirteen years the upside part of the correction looked to be over. Now, a strong case can be made that the final top was made on May 22. At the opening of the market that day, Fed chairman Ben Bernanke told the world that the Fed would be accommodative (print money) as long as necessary to provide liquidity for a recovery in the economy. The market spiked on the announcement and closed down on the day. It has been dropping ever since.
The most likely time for the final low is in the fall of 2016, when trading cycles from fifty years down to seven years converge for a bottom. This is a serious forecast. Improbable as it seems, we may be looking at a market that is making a top that will not be exceeded in our children’s lifetimes.
Nassim Taleb coined the term Black Swan for an event that has three characteristics: 1) It’s probability is held to be so remote as to be incomputable in conventional, bell curve terms, 2) It has extreme impact, and 3) Everyone has an explanation for it after it occurs.
My bet is that we are staring a Black Swan in the face.
No one should consider any part of this presentation as a recommendation to buy or sell any securities whatsoever.