2016 in Markets: The Probabilities

Ohhh, this is gonna hurt!

Batty Coda, in Ferngully

This time a year ago, 17 economists, thought to be the financial industry’s most knowledgeable professionals, unanimously forecasted an up year in the markets. The result: All the secondary averages were down 10-15%, the average stock in the S&P 500 Index was down 20%, Berkshire Hathaway, Warren Buffett’s stock investing firm, was down 12%, and the Dow Jones Industrial Average posted a 2.23% decline. Cash, with an infinitesimal 0.11% gain was the winner in the asset sweepstakes

This year, the dudes are again unanimously forecasting stocks to be higher at the end of 2016. So far, the first four days of the New Year were the worst ever for the S&P 500. That said, there remains the possibility in the Elliott Wave studies that the S&P and the Dow Industrials work their way to a new high over the next few months. Not essential, but if it happens, the overall market will be even more divergent than in 1929, when market wags noted that “Only the generals were moving forward, the troops  having long since quit the battlefield.”

The Elliott Wave outlook, per Prechter and company, is unambiguous: A horrific year for stock investors ahead. This is a C wave. Here’s what the book says about C waves: “Declining C waves are usually devastating in their destruction…It is during these declines that there is virtually no place to hide except cash…”

In addition to the Wave’s pattern, three very large trading cycles, a fifty year, a thirty four year, and a 7 1/2 year cycle are coming into simultaneous lows during the summer. The C wave should hit a bottom around DJ 3,200, before bouncing for a bit and then heading down to the projected Grand Supercycle Wave bottom well below 1,000. The latter could be years away, but it would not surprise me, given the severity of the cycle pressure, to see 3,200 in the Dow this summer. 1929 was almost that bad.

Meanwhile, every “expert” the media has brought on to comment on the carnage this week has insisted  that the selloff, supposedly due to the weakness in the China markets, has been overdone here, “We’re just fine, our economy is rock solid,” was the comment on NPR this morning.




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