Sentiment Speaks: Major Market Topping Considerations

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
October 11, 2022

(This article was first published Oct 9 on Seeking Alpha.)

In my last update, I outlined my expectations for us to move into a long-term bear market which can last anywhere between 7-20 years.  And, many commented that a 20 year bear market is simply not possible.  

Well, I am here to tell you that not only is it possible, but it is quite probable.  For those that did not read one of my older articles which explained my analysis underlying my perspective, please read the article here:

https://seekingalpha.com/article/4429877-sentiment-speaks-its-the-roaring-20s-again-begin-to-prepare-for-the-same-ending

Many of the objections to my bear market perspective were based upon the fact that we have not seen a correction of that magnitude during the last 100 years.  Therefore, they linearly assume that it simply can’t happen. 

Well, I am here to tell you that not only is it possible, but it is quite probable. You see, we do not view the market in a linear fashion.  Rather, we utilize a non-linear methodology which outlines our expectations for a bear market which can potentially last longer than any other to date in modern times.   

As I explain in the article above, we are topping in a wave structure that is 90 years in the making.  As I noted, this rally is culminating a bull market move which began in 1932, when the bear market which began with the 1929 stock market crash concluded.  That bear market was an almost straight down price decline which lasted approximately 3 years. 

In Elliott Wave analysis, we have something called the theory of alternation.  That suggests that if a 2nd wave correction is fast and straight down (as was the bear market which lasted from 1929-32), then the corresponding 4th wave will likely be a sideways and very long, drawn out correction.  

Now, I want you to consider the market action from 2000-2009. That was a 4th wave correction which lasted 9 years.   But, what is more important to our determination about the extent of the next major market correction that I expect is that the 2000-2009 correction was a 4th wave of one lesser degree than the one I expect over the coming decade.  Therefore, if a smaller degree 4th wave lasted 9 years, I am assuming that the upcoming bear market can last approximately double that amount of time, but with a minimal expectation of a 13-year Fibonacci time frame. 

So, rather than assuming we are going to see a “run-of-the-mill” bear market based upon our recent history, one should be considering that the upcoming bear market is going to correct a bull market rally that has lasted 90 years, and then maybe you can grasp a much longer bear market than that of which you currently conceive.  

As a further point, I place the long-term bear market target in the 1000 region.  Another Elliott Wave principle is that a 4th wave often targets the price target of the 4th wave of one lesser degree.  The 4th wave of one lesser degree was the 2000-2009 correction, and it bottomed at 666SPX.  However, another factor to consider is that when the 5th wave extends, as I believe ours has, then the target for the impending 4th wave is the bottom of the 2nd wave of the preceding 5-wave rally structure.   This provides me with my 1000SPX target, as that is where the 2nd wave within the preceding 5-wave rally concluded. 

Now, for those that also consider this to be quite “impossible,” I want to remind you of another market call I made back in 2011 in the gold market.  At the time of my market call in August of 2011, gold was rallying in a parabolic manner, with some days see $50+ price increases.  The only question being debated by analysts at the time was how far beyond the $2,000 mark gold was going to travel.  But, at the time, I posted the following market call on Seeking Alpha:

“….Since we are most probably in the final stages of this parabolic fifth wave ‘blow-off-top,’ I would seriously consider anything approaching the $1,915 level to be a potential target for a top at this time.”  - August 11, 2011

While most that read that article considered me to be either a fool or completely nuts, they clearly did not think this to be possible.  What was even more outlandish and beyond conceivability to most was that I was also calling for gold to return to the $1,000 region.  And, yes, I noted this even before we struck the top within $6 of my target.  That downside calculation was made in the same manner as I have done with the current SPX analysis.  As we now know, gold not only topped within $6 of the high I outlined, but we bottomed within $50 of the target I set even before we topped.  So, again, my SPX downside targets are based upon the same methodology used for my gold analysis back in 2011. 

I want to add some interesting additional tidbits which have provided me with additional Fibonacci mathematical support to likely seeing a major top in the market around the 2022-24 time frame.      Before we begin this exercise, I want you to understand that most that apply Fibonacci timing suggest that it can be within 1-2 degrees within the actual Fibonacci number.   So, let’s get started with that in mind. 

A Fibonacci 13-year time frame from the bottom struck in 2009 as the potential target time frame places us in the 2022-2024 time frame.   Moreover, 2021-23 is a Fibonacci 34 years from bottom of the correction in 1987 and 89 years from 1932 bottom in the market.  Now, this is not something I would trade upon, but it certainly provides some interesting Fibonacci mathematical timing for a major top in the stock market.

Of course, I can be wrong that the impending bear market will last a minimum of 13 years, with potential to last as long as 20 years.  Therefore, my alternative is that we are going to develop an even more extended 5th wave off the 2009 low.  That would suggest that the rally off the 2009 low was only a 1st wave of a very extended 5th wave.  And, that the impending bear market is a 2nd wave pullback.   And, this will likely result in only a 5-8 year bear market guestimation, with a target in the 1800-2200SPX region.

In either case, once the market either provides us with a higher high in the coming two years, or provides us with clear evidence in the coming months that we have already topped, I am assuming we will be stuck in a market correction which will last at least 5-8 years.  Once this segment of the correction concludes, we will then have to see how the market rallies off the low of that initial decline segment.  If the rally is impulsive in nature, then I will adopt my alternative count of a much larger 1-2 structure off the 2009 low.  However, if the nature of the rally is clearly corrective, then I will be assuming the bear market will continue for at least another approximately 8 years (but with the first 3-5 years of that being a corrective rally within the ongoing bear market).     

Above I have outlined my views on the larger degree structure I have been tracking for many years.  So, let me mention my near-term views.  After the market completed its rally this past week, I outlined to our members my expectation for a pullback.   However, on Friday, that pullback has taken us a bit deeper than I originally outlined before this pullback began.   This has opened the door to the potential that the decline this year has not really found its bottom yet.  So, if we do not see a strong green day on Monday, the market may still be feeling for a bottom in the 3500-3550SPX region before the major rally I expect begins. 

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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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