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. These patterns move at what we call multiple degrees of trend (they are 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 that you’re working within.
The motive waves shown above are typical in terms of their look and length. Subwaves of motive waves measure out to specific lengths (fibonacci ratios) very accurately. Motive waves are the easiest waves to trade.
Waves 1, 3, and 5 of a motive wave pattern each contain 5 motive subwaves. Waves 2 and 4 are countertrend waves and move in 3 waves.
Motive waves also travel in channels. The red channel above can be drawn from the apexes of wave 1 and 3 on one side and waves 2 and 4 of the other. The end of wave 5 typically meets the trend line on the wave 1 & 3 side before it reverses.
Countertrend waves move in 3 waves and always retrace. You’ll find much more about them in the countertrend section and the page on “The Right Look.”
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).
This past week was very bullish and traced out the balance of the third wave of the C wave of the D leg of the contracting triangle. We are heading for the top of the D leg. This will lead to a reversal shortly ahead (likely this coming week), which will trace out the three wave E leg of the contracting triangle.
The D leg wave structure is very complex, as I've been predicting it would be and as a result, there are multiple targets for the top, landing in the 2750 - 60 range.
After the E wave down is complete, we'll take off again to the upside in a fifth wave, which will simply finish off the pattern. We'll get to a new high and probably more, but don't expect (as I've been saying for a very long time) a large fifth wave that travels any great distance. (I think 3000 is possible but at the high end of the probability spectrum)
Summary: We have one more fourth/fifth subwave combination to trace out to complete the triangle D leg. Targets for the D leg top are within the 2750-60 area. Once E leg (down) is complete, expect a final larger degree 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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