Based on my Elliott Wave Count, together with data on investor sentiment and momentum, I’m giving an eighty percent probability that the upward corrective action in stocks since the January 9th low is about over. If so, the next wave down should be severe, taking the Dow Jones Industrial Average down below 18,000 (presently 24,700 or so) to the next pause to consolidate the losses. I am looking at this pattern as a bear market of Grand Supercycle degree of trend. The ultimate low should be below 3,000, several years out.
I get arguments counter to my analysis from two sources: The financial advisory industry, and friends who are successful businessmen and professionals outside of the investment industry.
Banks, brokers and financial advisors are of one mind: citing the present strength in the global economy, they tell us the next biggest move in stocks will be up. I counter that with the historical truth: at major turning points everything looks great, and it is the market, not the economy that changes direction first.
Friends and acquaintances in non financial businesses are generally dismissive, if not outraged when they hear my view. “No, that’s not going to happen, Rod. We’ll have some adjustments, maybe, but nothing like you imagine.”
I don’t ask what form of analysis they use to come to their conclusion. I don’t think there is one. They just don’t “feel” like my forecast can be logical.
So, what about the 20% probability that I’m wrong? Well, there is an outside chance that the selloff since January 26th is just another correction in an ongoing bull market, and we will have another leg up. But getting to that conclusion puts all kinds of torturous requirements on the wave count. I’d really rather say I’m 100% certain a crash is coming in a few market hours. But that’s not a good way to think.
If I owned any stocks (I don’t), I’d use the February 9 low of 23,360 in the DJIA as my stop point, and liquidate everything I owned if it got below.
As long time readers know, I write these essays to help me frame reality for myself and to give my family and friends something to think about. I do not make recommendations. What you do with this information is your business.