All this talk about a Trump rally … absolutely ridiculous! Elliott waves predicted this rally a years and a half ago—even longer, in fact. So, what are the financial pundits talking about this time? The thought of every word that Donald Trump utters having any real effect of the market is just ludicrous.
Knowing that the market is traded around the world, to think that the entire world buys and sells based upon what happens in Washington DC is really extraordinary. The height of man’s hubris knows no bounds. Next, they’ll think that we’re in control of Earth’s climate!? (oh, yeah, I forgot for an instant …)
This notion that events have any major impact on the market is part and parcel of this same kind of thinking. It will be fascinating to see the reaction when it starts getting noticeably colder right across the world, the market crashes big time, and the people realize that we’re really not in control of anything that happens on the third rock from the Sun.
Of course, that will only be some people, as the major media will blame the financial crash on Donald Trump and the climate, or an event that “happens to” coincide with the predicted top.
The truth is that the movement of the market is a mathematical representation of the mood of the herd.
The market will continue moving up in its Elliott wave rhythm until the herd is more negative than positive and at that point, it will turn down. There will be a major event in and around that time, but it will not be the single event that will change the course of history. However, as in the past, it’s likely that the herd will pin the cause of this historic market collapse on that single event, even though it’s highly likely that it won’t happen right on the day of the top, but somewhere close to it.
Major events do not change the market trend. The trend wanes over time until, as I said, it just keels over. At that point, the underlying weakness takes it down quickly and the concern that’s been percolating under the surface suddenly takes hold and quickly turns to fear. From a daily or weekly chart perspective, the market will come down in three very predictable waves, with countertrend subwaves hitting their targets along the way just when they’re supposed to.
It will be an historic drop that “nobody saw coming.”
Elliott Waves and the Stock Market
Waves reflect the mood of the herd. As a result, at the highs of the market, good events occur, because the herd is in a positive mood. At lows, bad things happen.
We’re rather regularly hearing the cries of pundits or even hedge fund heads that the market is reacting positively to bad news these days. They simply don’t understand how that can happen! Well, that’s because the market is bullish due to the overall mood of those who affect it.
I often find it amusing when pundits and other media types make every excuse they can think of to explain a market that’s not reacting to events the way they expect it to. Or when they try and explain a downturn on good news. They’re certainly very creative!
Elliott waves move in very specific patterns that always play out to their prescribed end points. Virtually all the waves have fibonacci ratio relationships to other waves and so the predictability is extremely high. Given the knowledge, it’s relatively easy to predict wave ends accurately.
As I explained last week in the blog post, every ending wave is in five waves, it doesn’t matter whether it’s a motive or corrective market. I’ve never seen a truncation, even though some say it could happen. Yes, if this time is different, I suppose it could. But that’s what this site is all about: cycles. Cycles play out over and over again; otherwise, they’re not cycles. Elliott waves are price cycles and they play out as predicted until the mood changes.
A Couple of Examples
Brexit (SP500): Above is a daily chart of the SP500 from April through July of 2016. The recent Brexit vote of June 24, 2016 had a dramatic effect on the market for a little more than a day. I remember it well. We had already started a correction and I had expected a drop. I happened to be on a plane when it happened and could not take advantage of it (it had been hours of delays on the road and I wasn’t able to access the market).
It’s interesting to note that the C wave shown in the chart ended up being exactly 1.618 times the A wave down, which is a typical fibonacci relationship in a correction. Two days after the event the market headed right back up (I had made the call based upon the wave structure) and it didn’t take long for it to completely retrace the drop. The trend did not change—the market simply continued the correction and then turned up again on schedule.
I remember all the pundits making a really big deal of the drop, as if it were the end of the world.
Nine-Eleven (SP500): Above is a daily chart of the SP500 from May – December, 2001. On September 11, 2001, the attack on the World Trade Center took place in New York City. The US market had already been in a downtrend since May 22, 2001 (on the above chart). The market bottomed on September 21, just ten days after the attack and turned right back up, eventually heading to a new high, of course. Although we had a steep drop on the day of the attack, an historic event of this magnitude did not have a major effect on the larger trend.
John F. Kennedy Assassination *SP500.” Here is a daily chart of the SP500 from October, 1963 through January 30, 1964. Kennedy as assassinated on November 22, 1963 (the big red bar down). We were already in a downtrend. That day (22nd) finished the downtrend and the next day, the market turned around and want up to a new high and continued on with the larger trend.
Based upon these examples, it’s not logical that Donald Trump’s election has had any kind of lasting effect on the trend. After all, the rise in this fifth wave we’re currently in had already been predicted through the Elliott Wave Principle. Events do not change the trend.
But it’s sure fun to watch the pundits play!
The Market This Week
Above is the daily chart of ES (click to enlarge, as with any of my charts). The call was correct once again, of course. Last weekend, I had called for a dramatic turn later in the week and we certainly got it.
Fourth waves are ABC corrective waves. We've completed both the A wave and the B wave. We're starting down in the C wave.
Much more downside to come. This is the fourth wave of the C wave of a zigzag (the fifth and final wave of a larger topping structure).
Summary: We're in the fourth wave in ES.
After completing the larger fourth wave, we'll have one more wave to go, which could be an ending diagonal as a fifth wave. The long awaited bear market is getting closer.
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