The 500 Year Bull Market
If often talk about the 500 year bull market. From my extensive research in economic cycles, the more specific measure is 516 years (3 times the 172 market crash cycles).
If the “orthodox top” of the market was in 2007 (which also coincides with a 172 market top (and the start of the current ongoing “recession,” the 516 year start was in the year 1492, which marks a major turning point in feudalism. You will also recognize the date as the euphoric top of the previous 516 cycle and the discovery of the “New World” (North America).
Above is a 500 year compendium of stock prices (click to enlarge) gathered from multiple sources to provide a guide as to the rise in prices from 1509 through 2014. You can find major events identified on the chart, including wars, which generally take place at the lows.
The above chart generally follows the Elliott Wave Principle in structure and places us at the top of a five wave super cycle, with an expected major downturn, crash, and depression to begin during 2018.
The labelling is open to dispute as I don’t have the ability to use the usual fibonacci ratio tool to confirm subwave levels, but the labelling about is simply a wave count based upon the usual Elliott Wave rules and guidelines.
The grey rectangle on the chart relates to the “zoomed in” chart of the DOW below.
Above is a quarterly (3 month bars) log chart of the DOW, stretching from about 1915 through to today’s date, with the Elliott Wave labelling of the final fifth wave up of the 500 year bull market (the price history relating to the grey rectangle in the 500 year chart above).
Near the top of the chart, I show wave (5) (the orthodox top) at the year 2007. The wave down from the top in 2007 was in three waves and ended at a low in early 2009. The final wave up from 2009 is a corrective B wave, and is almost complete (see my daily chart of ES below). I’ve shown this B wave count before and will again over the coming weeks as we near the final top (which I expect in the next couple of months, if not sooner.
Once five waves have been completed, the trend changes. The B wave is an anomaly, what I call an “unnatural wave” brought about by central banks ramping up enormous levels of debt with the result of fueling more inflation and the typical stock market speculation which has led to this extraordinary bubble.
The horizontal line at the 569.89 level identifies the previous fourth wave of one lesser degree. This is the typical target (the area of the previous fourth wave) that the market seeks out after a fifth wave top. Since the expected C wave down does not necessarily reach the target, I conservatively tell folks to expect the DOW to be under 3000 points by about the year 2022.
And there you have my analysis of where we are and, more importantly where we’ve been. History repeats. It’s important to pay attention to it.
Elliott Wave Basics
There are two types of Elliott wave patterns:
- Motive (or impulsive waves) which are “trend” waves.
- Corrective waves, which are “counter trend” waves.
Motive waves contain five distinct waves that move the market forward in a trend. Counter trend waves are in 3 waves and simply correct the trend.
All these patterns move at what we call multiple degrees of trend (in other words, the market is fractal, meaning there are smaller series of waves that move in the same patterns within the larger patterns). The keys to analyzing Elliott waves is being able to recognize the patterns and the “degree” of trend (or countertrend) that you’re working within.
Impulsive (motive) waves move in very distinct and reliable patterns of five waves. Subwaves of motive waves measure out to specific lengths (fibonacci ratios) very accurately. Motive waves are the easiest waves to trade. You find them in a trending market.
Waves 1, 3, and 5 of a motive wave pattern each contain 5 impulsive subwaves. Waves 2 and 4 are countertrend waves and move in 3 waves.
Countertrend waves move in 3 waves and always retrace to their start eventually. Counrtertrend (corrective waves) are typically in patterns — for example, a triangle, flat, or zigzag. Waves within those patterns can be difficult to predict, but the patterns themselves are very predictable.
Fibonacci ratios run all through the market. They determine the lengths of waves and provide entry and exit points. These measurements are really accurate in trending markets, but more difficult to identify in corrective markets (we’ve been in a corrective market in all the asset classes I cover since 2009).
To use Elliott wave analysis accurately, you must be able to recognize the difference between a trend wave (motive) and a countertrend wave (corrective). There’s very much more to proper Elliott wave analysis, but this gives you the basics.
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The Market This Week
Here's the latest daily chart of ES (emini futures)
Above is the daily chart of ES (click to enlarge, as with any of my charts).
We're not quite done with this complex third wave of the ending diagonal. As I've mentioned above, it seems to be taking so long due to the fact that many (if not all) asset classes look like they're going to turn at the same time as the US indices. This week, for example, we now have NYSE heading for a new high, which when achieved, will put it into an ending diagonal. Wonders never cease in this market.
On Friday, we dropped down in a larger fourth wave, of this final fifth wave. We had a 1-2, 1-2 set up for start the wave up. That means we have to have a 4-5, 4-5 ending. We're in the fourth wave of that final 4-5 and we have one more wave up to go.
The third wave of the larger ending diagonal, which we've been in now since the beginning of April (17 weeks as of this weekend) is always the most complex and longest wave. Once it's complete, we're about 75% of the way through the ending diagonal. We have one more wave down (a fast one — wave 4) and one more wave up to a final high (these waves can be fast or slow, but they go up in three waves and cannot be longer than the height of the third wave).
In other words, we're getting close to being done with this final pattern. Time is the factor that is not a component of Elliott Wave and so I can't provide a lot of insight into the "when."
The US Dollar is also very close to a top and we may see that happen this week. It's making the overall market (certainly currency pairs) quite volatile. As I've been saying the low volume pays a large part of that volatility.
The coming wave down (the fourth wave of the ending diagonal) will have a target somewhere near 2600-25 (depending on where it finally tops).Then we'll turn up into the fifth and final high ... but a high that will have a definite maximum target (to be determined once the fourth wave is fully in place.
Summary: We're waiting for the final fifth wave of the larger third wave of an ending diagonal to top. Once it ends and turns down, we'll drop into the fourth wave of the ending diagonal in ES. Once the 4th wave (down) is complete, expect a final fifth wave to a new high. That fifth wave up to a new high will be the end of the 500 year bull market.
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