Avi Gilburt's Insights – Mon 18 Feb, 2019

Avi Gilburt – It’s Blue Skies For The Stock Market As Far As The Eye Can See

I think there is a great debate ongoing about just how soon we will see the US markets go through a significant pullback and when the US will enter another recession. Below is Avi’s opinion of when this will happen. Note the dates of between 2021-2023.

By Avi Gilburt, ElliottWaveTrader.net 

We have all heard it. Many times through history, the hubris of analysts, economists, and market participants has been on display when markets rally extremely strongly. In fact, such hubris often accompanies major market tops. And, history has taught us that most of them are quite severely near sighted.

Allow me to show you some examples.“We will not have any more crashes in our time.”

This was said John Maynard Keynes in 1927, two years before the stock market crash which lead to the Great Depression.“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months.”

This was said on October 17, 1929, a few weeks before the Great Crash, by Dr. Irving Fisher, Professor of Economics at Yale University. Dr. Fisher was one of the leading US economists of his time.

“I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”

– E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

“There will be no interruption of our permanent prosperity.”– Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

And, these are just a few of the popular quotes of their day. And, by the way, has anyone heard of the Pierce Arrow Motor Car Company? You have not? Well, that is because they went bankrupt during the Great Depression. But, I digress.

And, let’s not forget Alan Greenspan, who just before the housing bubble burst, was quoted as saying:“. . . a ‘bubble’ in home prices for the nation as a whole does not appear likely . . . Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications.”

This is the same Alan Greenspan who later provided this explanation as to why the 2008-09 financial crisis was “unforeseeable:”“Regulators who are required to forecast have had a woeful record of chronic failure. History tells us they cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be.”

Yet, history proves that most still exhibit extraordinary hubris just as we are striking major market tops despite the admissions that they are unable to foresee such events.

Of late, more and more market participants, analysts and pundits have been viewing the current rally as the resumption of the bull market. In fact, this post in an article on Seeking Alpha on Friday probably sums up the predominant perspective of many right now:“There are no major negative catalysts on the macro-economic fronts in the horizon, especially with regard to fiscal and monetary policies, to derail the dominant up trend of the current bull market.”

And, here is another, with still so many more out there I am not even going to note:“I don’t see a logical stopping point for the rally over the next few months.”

So, let me ask you, do you think history is repeating itself?

While you consider that question, I am also going to provide to you the recent analysis I provided to the members of my ElliottWaveTrader.net service:

With the market rallying off the December lows in what is an almost straight line higher, these types of moves do not often end well.

While we expected the market to drop down to the 2250-2335SPX region to complete the a-wave of an a-b-c larger degree 4th wave correction, we also expected that the b-wave rally would take us back to at least the 2800SPX region, and even potentially make a higher high. From that perspective, the market has been acting almost exactly according to our larger degree plans that we set even before this market broke 2700SPX.

However, I had initially expected a more drawn out [b] wave pullback/consolidation before we rallied to 2800 and higher, yet the market is suggesting it may have other intentions. And, the coming week will likely either confirm or invalidate this intention.

Last weekend, I noted a downside set up in place which would give us that downside consolidation we wanted to see for that [b] wave pullback. But, I also noted that the market must remain below 2725SPX to keep that perspective intact. With the rally through 2725SPX, the market gave us strong indications that it may take the more direct path to the 2900 region, which we presented in the “FOMO count” over a week ago, which is represented on our charts in purple.

While it is still possible for the market to provide that bigger [b] wave pullback, based upon its current structure, I cannot assume that to be the case anymore as long as we remain over the 2740-55SPX support region. In fact, the market will now have to break back below 2730SPX to tell us that a [b] wave pullback has become a higher probability again. And, if the market should break out through the 2780SPX region first, then support moves up to the 2750SPX region, and we are likely targeting the 2810-2840SPX region before the next pullback/consolidation takes shape.

As you can see from our 5-minute chart, should we be able to move through this “continuation resistance” box noted on my chart, it should signal that the purple path is what we are following to complete this larger degree corrective rally. And, once we reach the target box overhead for what is labeled as wave [iii] of 3, then I am going to expect the market to pullback towards the FOMO market pivot for wave [iv] of 3. Take note again that should we break out through 2780SPX, our support region will move up to 2750, but if we are able to reach our ideal target box overhead for wave [iii], then the support region for this wave [iv] pullback will move up to the 2770SPX region.

Should the market be able to strike the 2800+ region, this 2770SPX support is going to become extremely important. You see, once we get over 2800SPX, any sustained break down below 2770SPX will be an initial indication that the b-wave rally we are tracking may have completed prematurely, and may be following the path we have outlined in the yellow count on our daily chart. Yet, as long as we hold over that 2770SPX support, the pattern continues to point higher for wave [v] of 3, with a target box beginning in the 2867SPX region.

The issue with the market taking the direct path for our b-wave rally is that when it stretches this much to the upside, it suggests the downside may be fast and furious. In fact, I think it may be akin to the downside we experienced in February of 2018, January 2016, and the summer of 2011. All 3 had direct and strong rallies higher in their respective b-waves, only to be followed by very strong “crash-like” c-waves lower. So, the more this market continues to stretch to the upside in direct fashion, the more likely the impending c-wave down will be even stronger. So, yes, the market seems to be setting up a dangerous structure indeed.

So, in summary, as long as the market is over 2740-55SPX in the coming week, I am looking for a break out through 2780SPX, which will then initially raise support up to a floor of 2750, with a further raise to 2770 should we be able to move to 2810SPX. Alternatively, should the market break below 2740, and follow through below 2730, it points us back down to the 2600 region, and potentially lower for the [b] wave pullback.

I will also continue to reiterate that I do not believe the bull market which began in 2009 has yet completed. In fact, we have maintained a minimum target of 3200SPX for this bull market, with the potential to even reach as high as the 4000 region. However, until the 1-2 structure is in place for that final multi-year rally, we will not be able to identify the higher probability target.

Lastly, I want to repeat something I posted this past week about a general timing perspective we have for when this bull market may complete in the coming few years.

I rarely get into the perspective of specific “timing” within the market because, based upon my research and experience, I still have not found anything that would work better than 50% when it comes to “cycles,” with many underperforming that benchmark. In fact, I have seen cycles analysts blow up more people’s accounts than I have cared to see, and it truly makes me sick to see so many people lose money. But, I digress.

So, I wanted to explain a bit more about why I have been expecting a major market top in the 2022 time-frame. While we use Fibonacci price relationships to successfully identify high probability price targets in the market, sometimes we see Fibonacci relationships within a timing perspective. Since the market bottomed in 2009, I was considering a Fibonacci 13-year time frame as the potential length for this 5 wave structure off the 2009 lows.

Recently, I had a nice discussion with one of our more astute members at Elliottwavetrader.net – Bill Albert, who many of you know by his trading room handle El Hombre Espantoso. Bill provided me with some very interesting observations which support a similar time frame for a top in the market. Bill noted that the year 2021 is a Fibonacci 34 years from bottom of the correction in 1987 and a Fibonacci 89 years from 1932 bottom in the market.

Now, when you consider that these Fibonacci timing cycles often have a margin of error of 1-2 years, we have some very interesting confluence for a major market top between the years 2021-23, with the 13 year Fibonacci cycle off the 2009 lows landing right in the middle at 2022. And, once we are nearing completion of a 5-wave structure into that time frame, I think it would be prudent for investors to begin to cash in their chips in preparation for what I expect to be a multi-year, and potentially a multi-decade, bear market.Just something further to consider in the coming years.

See charts illustrating Avi’s wave counts on the S&P 500 across various timeframes.

Avi Gilburt is a widely followed Elliott Wave technical analyst and founder of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P 500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education.


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Comments:
  1. On February 18, 2019 at 3:23 pm,
    OOTB Jerry says:

    Very interesting………..2022 ,
    What has Fibonacci 89 year cycle have to do with anything…just wondering…
    that seems like a really long cycle…..thanks

    • On February 18, 2019 at 3:28 pm,
      OOTB Jerry says:

      OK………..I think I found my answer ….
      Degree
      The patterns link to form five and three-wave structures which themselves underlie self-similar wave structures of increasing size or higher degree. Note the lowermost of the three idealized cycles. In the first small five-wave sequence, waves 1, 3 and 5 are motive, while waves 2 and 4 are corrective. This signals that the movement of the wave one degree higher is upward. It also signals the start of the first small three-wave corrective sequence. After the initial five waves up and three waves down, the sequence begins again and the self-similar fractal geometry begins to unfold according to the five and three-wave structure which it underlies one degree higher. The completed motive pattern includes 89 waves, followed by a completed corrective pattern of 55 waves.[2]

      • On February 18, 2019 at 3:37 pm,
        OOTB Jerry says:

        as an added thought…….if, I was going to bet the ranch…..
        Criticism
        Benoit Mandelbrot has questioned whether Elliott waves can predict financial markets:

        But Wave prediction is a very uncertain business. It is an art to which the subjective judgement of the chartists matters more than the objective, replicable verdict of the numbers. The record of this, as of most technical analysis, is at best mixed.[18]

        Robert Prechter had previously stated that ideas in an article by Mandelbrot[19] “originated with Ralph Nelson Elliott, who put them forth more comprehensively and more accurately with respect to real-world markets in his 1938 book The Wave Principle.”[20]

        Critics also warn the Wave Principle is too vague to be useful, since it cannot consistently identify when a wave begins or ends, and that Elliott wave forecasts are prone to subjective revision. Some who advocate technical analysis of markets have questioned the value of Elliott wave analysis. Technical analyst David Aronson wrote:[21]

        The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method’s loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong.

        The Elliott Wave Principle is also thought by some to be too dated to be applicable in today’s markets, as explained by market analyst Glenn Neely:

        “Elliott wave was an incredible discovery for its time. But, as technologies, governments, economies, and social systems have changed, the behavior of people has also. These changes have affected the wave patterns R.N. Elliott discovered. Consequently, strict application of orthodox Elliott wave concepts to current day markets skews forecasting accuracy. Markets have evolved, but Elliott has not.”[22]

  2. On February 18, 2019 at 4:26 pm,
    Chris says:

    OMG this guy is a loser

    • On February 19, 2019 at 11:53 am,
      OOTB Jerry says:

      forget the “is”