History Rhymes. It’s never exactly the same, but it gets so close that the traits of the underlying cycles are eery when you’re sensitive to the periodicity (the typical lengths of a repeating period).
At this point in my narrative of the last few weeks, I’ve reached the doors of the Great Depression, ending with some similarities with the time of President Herbert Hoover (1928-32) and the newest US President, Donald Trump.
Just like Hoover, Trump is a populist president and just like Hoover, he will introduce tariffs, which will limit trade and is deflationary. It simply adds to the current problem, but doesn’t cause it. Governments always close the doors after the horse has left the barn.
I’m going to take a break from that narrative this week to concentrate on two areas, for two reasons:
- Cycles repeat, both natural and man-made. The former influences the latter. The lead-up to the 1929 crash almost exactly parallels what’s going on today and is the easiest to draw comparisons to, although in past posts, I’ve shown obvious parallels to the 516 year cycles tops (the Renaissance and the printing press of the 1500 top, the height of the Roman Empire and Christianity, and 100 A.D. top, and the 600 A.D. top, which began the Byzantine Empire and the birth of Islam). I’m going to summarize the situation in the 1920 leading to 1929, a smaller cycle turn below.
- Elliott waves run throughout every trend on Earth. Even though I’m accurate in my predictions in the 90 percentile in terms of currencies (the US indices, oil and gold), there seems to be this ongoing belief that there’s nothing to it; that there can be all kinds of different counts. Believe me, there’s only one count. It’s the analyst that’s the problem. I’ll outline where we are below right now, believe it or not
The 1920s and Interest Rates
During the 1920s (right after WWI), European countries and the US were still tied to the gold standard, which linked their currencies together. How well you were doing as a country depended upon your stash of gold, because it had to back up your currency.
If anyone traded in their currency, they were able to receive its value in gold. However, after the war, Britain had spent all its gold to pay for the war, and was in a state of depression. The US had come out of the war in really good shape financially (remember Fort Knox?), as it supplied most of the weapons and didn’t have war on its territory.
In my previous post, The Federal Reserve and the Great Depression, I told the story of Montagu Norman, the Governor of the Bank of England, who colluded with Benjamin Strong (head of the Federal Reserve) to set the US interest rates low so that gold would flow to Britain.
Since all countries were tied together on the gold standard, if you had high interest rates, people would move their money to your country, as they’d get a better return. But at the same time, money in the country with low interest rates is “cheap” to borrow just as it is today in most countries (in fact, we’re involved in currency wars). It leads to speculation in the stock market. It always does.
We’re not on the gold standard any more, so the value of currencies fluctuate; they’re not tied together (that’s the effect of fiat money). Governments today notoriously inflate to reduce the value of their own money so that their products are less expensive on the international markets. In that way, they sell more, resulting in more money flowing into their country. (If you can lower the price of your products, you sell more and become more profitable).
The bottom line is that in the 1920s, money in the US was inexpensive to borrow and that created a stock market casino (just like the one we have today) until the final blow-off, when the Federal Reserve raised interest rates.
It’s the same situation today. Exactly. Just watch the Federal Reserve go …
The above chart comes from New World Economics and tracks the US interest rate during the 1920s, leading up to the Great Depression.
You can see the high spike of interest rates in the 1920s above. The Depression of 1920-21 gets dwarfed by the Great Depression of 1929, but you can see the same phenomenon.
Here we go again. On the eve of another Federal Reserve meeting, I’m expecting to see another rise in interest rates and perhaps another one at the next meeting.
I’m going to suggest that this won’t be the cause of the crash, but is another marker that it’s coming very soon. It will likely help speed up the top, but the path is already “baked in.” Elliott waves tell us that.
Elliott waves run through every trend that takes place on Earth. You don’t find them just in the stock market, and that’s what the final section of this post is all about.
So, don’t discount them. They are hugely accurate, but it’s the skill of the analyst that makes them valuable. There are a lot of “pretenders” out there (that part seriously makes me crazy!). However, there is only one count that’s correct and a whole bunch of wrong ones. I’ll let you be the ultimate judge.
Herding and the Final Fifth Wave
The top will come when the tide has turned—when the final Elliott wave has played out—when the herd has everyone onboard the bull train and there simply isn’t any more money or unreasonable exuberance out there.
I hear the constant predictions of a turn-down at one top of another, but as I’ve been consistent with saying is that truncations in my experience are not real. They’re “fake news” from another time.
The Elliott wave structure forms the foundation for any major trend throughout society, worldwide.
Think of human nature and getting a herd of people to change their minds. Let’s use the example of smoking. Government and health organizations tried for many years to turn the tide on smoking cigarettes through huge amounts of advertising, negative ads right on the packaging itself, and taking the industry to court. But that’s actually just the recent history. All that happened after the tide had already turned!
Even though the argument was incontrovertible, due to study after study, and a long history of death from various cancers, the herd did not suddenly turn off smoking. People don’t suddenly, as a group, make a decision to change overnight. In fact, if you can get them to change a habit at all, it’s a major win!
Herding causes the change to happen gradually.
But the bigger story is two-fold:
- trends of any type follow the Elliott wave structure of 5 motive waves
- governments always get involved once the trend has changed (because they operate on consensus and the tide needs to turn more than 50% in their favour before a law will be passed)
So if you think Elliott wave is some crazy idea that’s kinda weird and sometimes works, guess again. It’s a mathematical representation of human nature and it’s simply going to play out, no matter what! The challenge is in the analyst—how good they are in reading the wave structure, which is fractal (a little plug for me).
As per the diagram above, the Elliott wave structure of five waves up or down, with waning volume in the fifth wave (and very often an ending diagonal, which is a motive wave, but has the structure of a corrective wave) is not exclusive to the stock market. You’ll find it as the foundation for any major trend throughout society, worldwide. There is more definition to the structure based on how much of the population is involved (ie.-the size of the sample).
The red numbers is the chart above are mine, The data comes from the United States Department of Agriculture: The 1986 Surgeon General’s Report. Note that the third wave even has 5 motive sub waves within it (an Elliott wave hard rule)!
Also take note of the fact that the government gets involved once the trend has changed. But nevertheless, they’ll take the credit for the success of the change. This is just a fact of life, and happens over and over again throughout history.
Take employment, as an example. The government has no real affect on employment but they’ll take credit for it in the good times, and blame it on someone else when it turns sour. We always fire politicians when the market turns down, even though they have nothing to do with it.
Elliott wave are a natural phenomenon and logically are a result of exogenous forces (beyond the confines of the Earth). I’ll let you think about that one—a subject for another post, or video.
My Recent Predictions
Here’s a summary of my recent predictions. I’ve made last weekend’s Trader’s Gold report available so you can check them out (along with what I provide daily and each weekend). You’ll find it here.
- ES/SPX: Of course, I’ve been saying the third wave is not finished yet, You’ll find this weekend’s predictions below. We have one more wave left.
- EURUSD: As I’ve been predicting, it has now turned up into the final wave with a target of 1.13. I called the recent turn right to the pip. Likewise, as predicted, the US dollar has turned down, done a first and second wave, etc.
- USDJPY: As predicted, is still heading up to a target of about 118.60.
- Gold: As predicted has turned down hard. I didn’t predict the “hard” part, but I’m predicting at least a double bottom (likewise for silver).
- Oil: As I’ve been predicting since the start of the year, it’s turned down. It’s been going sideways since then. The next target level hasn’t changed: $33.00.
So there you have it.
Pay attention to cycles. We’re going into a deflationary spiral because that’s what always happens.
We will have a wave 4 and 5, because that’s what always happens.
Now, if you believe this time is different, good luck with that.
Here’s the latest daily chart of ES (emini futures)
Above is the daily chart of ES. Nothing new here. The full wave up looks to be like a triple three (a combination wave) which is almost at completion (or will be with one small final wave up to about 2406—shown in the hourly chart below).
The larger 4th wave (after the top of 3 this week) will come down in three waves. After we finish the A and B waves, we should be able to project an end to the C wave of the 4th wave. Once we finish the fourth wave , we’ll get a final blow-off wave. I’m making a point of not projecting a final date for a top because the volume is so low, the markets are so erratic, and they’re moving so slowly.
Here are the path predictions going forward:
- Wave 4 will come down in 3 waves with any of the corrective patterns possibly in play.
- Wave 5 is likely to be an ending diagonal. In any event, it will be in 5 waves (not motive).
Summary: We’re at the top of wave 3 of the final larger 5 wave pattern, ready to turn down into four with one more very small wave up to a new high. I expect all major US indices to turn early this week. The larger wave 4 should come down in 3 waves (an ABC configuration to the target).
After completing the fourth wave, we’ll have one more wave to go, which could be an ending diagonal, as a fifth wave. It could also be a wave in 5 waves. It will move in tandem with the final wave in the USD currency pairs.
The long awaited bear market is getting closer.
Here’s the latest HOURLY chart of ES (emini futures):
Above is the 60 minute chart of ES. As I’ve been saying, we have one more high still to go. Although I seem to be one of the only ones saying this, the wave structure simply couldn’t be clearer. The wave up is in three waves topping on March 1 (which was an Andy P. turn date). Three waves do not end a sequence unless it’s the last wave of an ending diagonal, which it is not.
However, it looks to me like the start of an ending diagonal, because in this position, I don’t know what else it could possibly be. We have 3 waves up, three waves down, and the current set-up from Thursday Friday predicts three waves up to 2400 (C wave = 1.618 X the A wave).
We also didn’t go to a new low, or reach a double bottom with the previous 4th wave. So we’re clearly in the fifth wave position. It can’t be a triangle, so all we have left is an ending diagonal. This would make the current wave up wave 3 of the ending diagonal. Look then for a smaller wave 4 and 5 after this wave up and that may take us to the final projected top of about 2105 and we might end up there Wednesday, just in time to hear the fat lady sing.
Sign up for: The Chart Show
Thursday, March 16 at 2:00 pm EST (US market time)
The Chart Show is a one hour webinar in which Peter Temple provides the Elliott Wave analysis in real time for the US market, gold, silver, oil, major USD currency pairs, and more. You won’t find a more accurate or comprehensive market prediction anywhere for this price.
Get caught up on the market from an Elliott Wave perspective. You’ll also get Andy Pancholi turn dates for the balance of the current month. There’ll be a Q&A session during and at the end of the webinar and the possibility (depending on time) of taking requests.
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