OVERSTAYING A BULL MARKET
Most investors make money in a bull market, only to lose all profits
made–and sometimes more, in the readjustment that inevitably follows.
–The New York Times, September 22, 1929
I’m writing this piece as the Dow Jones Industrial Average appears to be close to completing a small degree correction (wave 2), after falling in bear market wave 1 some 2,000 points from its high of 29,951 reached October 3, 11 trading days ago. When this corrective wave is complete, wave 3 down gets underway, and it should be larger and more violent that wave 1.
This morning a friend said, “I know you’re not surprised by the drop, but the market’s gonna go up.” His opinion is in line with everyone else’s.
Here’s the chart of the Dow in 1929:
The first drop took place between mid October and the first week in November. The Dow fell from its high of 386.40, to 193.20, exactly 50% in about 3 weeks. From there, the market rallied into a recovery high of 303.90 reached in April 1930. From then, the Dow fell 89% to a low of 41 in May 1932.
Will this happen again? We should be prepared for it. Why? Because this is what the analysts at Elliott Wave International have as the most likely market outlook dead ahead. In forecasting, it is generally agreed that anything can happen, but I would be loathe to dismiss this one.
A few months ago I posted an essay on Facebook. I won’t do that again because it will be no help to anyone who has not been thinking about this for a while. Unless someone has prepared for a crash, they will want to know what is going to make it happen, and it’s too late for that. Either you’re prepared, or you cannot believe anything I say about it. It just doesn’t make sense to the crowd and the crowd’s advisors.
I am prepared for the Dow Industrials to crash to 13,000 or below by election day.