Has The Bear Market Begun?

October 12, 2018

It seems the pundits have lost their way. The reasons for the market moves have now confounded most market participants and pundits to such an extent, and they are stretching so far to provide a reason for a market move, that we have moved from the ridiculous to the sublime.

In the last several years I have outlined how the market has completely ignored the dozens of negative geopolitical events that were supposed to have adversely affected our market as it has continued to rally towards our long-term targets.

So, do any of you ever realize how ridiculous many of these news reports sound when they try to link the market action to the news? As I have said, there is almost always some positive news of the day to which the media can relate positive market action, and vice versa. But when there is no news to which they can easily relate the market action, it highlights how silly it really is to relate the news to the market action.

In fact, the market action we have seen at times almost mocks those who believe that negative events will cause negative reactions in the stock market. The other week, we saw announcements regarding another $200 billion in trade tariffs. And what did the market do? Yup, it immediately rallied over 50 points. Please take a look at my attached chart, which highlights how we rallied 9% since the start of the trade wars:

And, after the 50-point rally that kicked off after the latest $200 billion trade-war announcement, the market dropped 40 points and we saw reports like this on news forums:

Stocks fall amid report that Deputy Attorney General Rod Rosenstein is resigning

And when the market moved up the other week, well, of course this must be the reason:

Dow Gains 90 Points Because Objects in Motion Stay in Motion

Think about this one. How desperate was this writer for a title that he had to resort to Isaac Newton? But, I think this one took the cake:

Stocks higher as traders glued to Kavanaugh hearings

What makes me really chuckle is that everyone has been so concerned about the trade wars, yet the market has gone up after each announcement of their escalation.

So, let me see if I understand what is going on in the market over the last five months. The market rallied 9% on trade war news. And we seemed to have now pulled back about 4% (as of my writing this article) after an announcement was made about an agreement with Canada.

So, rather than assuming that trade wars are bad, should we now be calling for more trade wars to push the market higher?

Well, I guess I am simply not smart enough to figure out the market from this perspective, and there are much greater minds than mine who have been explaining how this works. And, maybe one day the market will also understand what they are saying so it does not continue to move in the opposite direction from where it is supposed to move on all these developments. Personally, I am quite content to be in line with the market, even though it means I am not as smart as those who have been telling us it was supposed to top years ago.

While many have been expecting this market to top out following various news events or fundamentals through the years (Brexit, Grexit, terrorist attacks, rising interest rates, North Korea, Trump, cessation of quantitative easing, etc.), we were looking for a rally into 2015 to take us to the 2100 region, a pullback into early 2016 toward 1800, which we then expected to launch us over 2600SPX. And we continually reiterated this perspective “no matter who was elected to be president in 2016.”

In simple terms, and without the use of all the smoke and mirrors of news, events or fundamentals, our analysis has been the same for years.

For years we been focused on a minimum target of 3011, which we anticipate before the 20%-30% correction that we have expected will begin in 2019. While we had had a much more ideal target of 3225SPX that we had expected before the start of that correction, this past week’s action (with the break below 2880SPX) suggests that we may not see 3225SPX for a number of years, rather than a number of months. This breakdown below 2880SPX has also made us much more cautious of the market, as I have outlined in prior updates.

At the end of the day, the point is that as long as we remain over 2770SPX, my next upside target is 3011. But, once we exhaust this upside pattern, I am still expecting a 20-30% correction. And should we see a direct and sustained break of 2770, it points us down to 2600 quite quickly, and likely the start of the bear market.

As I have been warning investors for well over a month now, and as I have warned even more strongly to our members, a break below 2880SPX should have investors strongly considering the rising risks in getting to 3000+ in the coming months. We have come quite close to our long-term target overhead, and should the market break back below 2770SPX, it will provide a signal that 3000 may be several years away.

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net (www.elliottwavetrader.net), a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. Visit his website:https://www.elliottwavetrader.net. You can contact Avi at: info@elliottwavetrader.net.

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