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It Is Time For A Serious Dose Of Caution

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
March 12, 2024

As the market continues higher, so do the expectations of most market participants, as well as their desire to place more money into the market. And, that is something that has always amazed me about the stock market.

I presented the question in an article entitled “Buying High, Selling Low: No No No:”

“In most all aspects of our purchasing lives, we are in search of “The Deal.” We look for the best price in just about anything we acquire. We will spend days comparing prices on our car purchases to get the best possible price. We will spend hours and hours to find the best possible price on that HD 50’ television that we so desire. Yet, we do not bridge that same mentality over to the stock market. What is even worse is that we actually apply just the opposite thinking. When we see prices significantly rise, we then feel compelled to buy. But, what is it about the stock market that seemingly makes us put our wise buying perspective on the sideline?”

Of course, you can choose to read the rest of the article to see my answer.

We are clearly seeing this now in the market, wherein many want to push more of their money into this market due to how strong it seems, with the expectation that it will continue to do so in linear fashion. I cannot tell you how many people I have heard from outside of my professional life who are only now wanting to pour their money into stocks like Nvidia (NVDA).

And, I am also seeing many analysts suggesting that the market has much higher to go. In fact, the one chart which has me extremely cautious – the Russell Index – is viewed by many as having at least another 15% higher to go.

I have been quite hyper-focused on the IWM since late 2023 when we were expecting it to rally off the 160/165 region to an ideal target in the 203-214 region (with the outside potential to go as high as 225), even before we bottomed, as you can see from this chart:

Elliottwavetrader.net

And, as the rally structure took shape off the October low, I refined that target to the 210-214 region in December. On Friday, we just hit the low end of my target. And, as some of my members noted this past week about our IWM analysis over the last year:

"Absolutely amazing that Avi was able to correctly foresee IWM's move into the area above 210.”

“Still amazed at how well EW works . . . A lot of other services seem to make the wrong calls at important market turning points. They seem to be the crowd and not the contrarian.”

Now, I am not going to bore you with the detailed analysis which caused me to look for that rally back in October of 2023 when most others were expecting the IWM to crash at that time. Nor will I bore you with why I refined our expected rally target to that region, or with the detailed analysis as to why I am not in the camp for a continued 15% move from here. Rather, I will simply say that this chart is strongly urging caution to me at this time. In fact, as long as we remain below 214 and then see a return back down to the 194 region in the coming weeks in an impulsive manner (term of art for a 5-wave structure which adheres to our objective Fibonacci Pinball standards), then I am going on “crash-alert.” Yes, you heard me right.

While everyone is getting all bulled up for all various reasons, I am seeing some potential cracks in the bullish armor. And, if I see confirmation for my concern over the coming weeks, then I am likely going to predict that the IWM will return down to the 130-150 region, with the higher probability target bottom being closer to 130 (at least at this point in time).

Now, I do not ever present certainties when it comes to my market prognostications, as there is no such thing as certainty in a non-linear environment such as the stock market. Rather, I base my analysis upon probabilistic market structures. And, as of right now, I am simply seeing some cracks in the bull market case which causes me to move to a very cautionary stance. So, it’s time to be on our toes.

This is no different than when I called for a top in gold at $1,915 during a parabolic rally in the summer of 2011, with a return to the $1,000 region. This is also no different than when, at the end of 2019, I called for a 30% decline starting in the first quarter of 2020 before anyone even heard of the word Covid. And, for those that have followed me through the years, you know that there are many, many other such market calls we have made in many different markets and sectors. It is all simply based upon our mathematically derived analysis of market sentiment.

Therefore, should I see further evidence over the coming weeks, then the probabilities rise quite dramatically that we could see a 25%+ market decline in 2024, just when everyone is now convinced that the bull market has returned and has much further to run. And should that set-up develop, then I am going to strongly urge members to raise cash, while presenting a shorting opportunity for those more aggressively inclined.

Again, I am not suggesting that a 25% decline will certainly happen. I am simply saying that investors must consider an added dose of caution over the coming weeks if further cracks begin to develop as outlined above. In other words, just as weather conditions can develop for a tornado to take shape, I am suggesting that market conditions may be developing for a storm of its own.

As for me, I have spent this past week raising cash from stocks which have reached our individual target points, and have rotated that money into treasuries and various other opportunities we are seeing in other sectors. And, should the set-up I outlined above develop in the coming weeks, I will be raising a significantly greater amount of cash.

“By failing to prepare, you are preparing to fail.” – Ben Franklin

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Avi Gilburt is a widely followed Elliott Wave technical analyst and author of 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. You can contact Avi at: [email protected].


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