Sentiment Speaks: Market Approaching A Potentially Major Bottom

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
October 4, 2022

Originally published Oct 2 on Seeking Alpha:  As we were ending 2021, I was outlining to those following my work that I expected a large pullback as we moved into 2022. In fact, I even noted that “we will likely see the largest pullback since we bottomed in March of 2020.”

However, I did not expect that the market was going to break below the 4000 region at the time. And, despite my expectations at the end of 2021, I was still able to outline quite a number of points at which I suggested to our members to raise cash as the market had potential to drop lower than I had initially expected. The first major point was at the end of March of 2022 as we were striking the 4630SPX region. And, I outlined several more as the market provided further bounces as we were making our way lower throughout the year.

Several weeks ago, on September 11, I published an article while I was traveling, which outlined the potential for a 500+ point imminent move. Interestingly, the two paths I was following were both pointing lower first. And, if that drop was impulsive in nature, I expected that the 500-point move would continue lower. In fact, the market even gave us a low probability opportunity to short before the market opened as we were approaching the 4175ES target we had for the prior rally. And, as we now know, the market topped exactly at that 4175ES level to the penny, and began the decline within which we have been involved in since that point.

And, many of our members were quite pleased with that analysis:

"Thank you Avi. I took your advice today and bought some protection. Instead of the S&P I used the DAX. Options doubled in a matter of minutes.

“Your call on protection was for sure perfect!"

As it stands right now, the market has declined 580+ points since we struck the 4175ES resistance target we outlined to our members of ElliottWaveTrader, and we have fulfilled our minimal expectations for the 500+ point move for which we were looking. Yet, the micro-structure has not suggested this decline has run its course.

Currently, resistance is in the 3681SPX region. Initial support is in the 3550SPX region, with support below that in the 3430SPX region. There is a pattern in place which can hold the 3550 support in the coming week. But, if we are unable to move back over the 3681SPX resistance, then we can certainly continue down to the secondary support region in the 3400/3430SPX region.

While I clearly cannot tell you exactly how the market will react in the coming week, I have provided you with the turning points I am watching to determine from where the next major rally may begin.

But, the most important factor that I will be watching over the coming weeks is if that next rally is impulsive or not. If the next rally through 3681SPX takes shape as a 5-wave structure, then I will retain my expectations to rally to 5150+ to complete the bull market off the 2009 low, after which we usher in a 7-20 year bear market.

However, if the next rally is clearly corrective in nature, then I will have to strongly consider that the bull market off the 2009 low has topped earlier and lower than I initially expected. That would mean we have potentially begun at least a 7/8 year bear market, but which could more likely last as long as 20 years. I have written about my expectations for this potential bear market and how I came to this determination in many prior articles if you are interested.

Sentiment Speaks: It's The Roaring 20s Again - Begin To Prepare For The Same Ending

Lastly, I want to remind you that we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action. And, if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But here is the most important part of the analysis: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.

As I have said many times before, this is no different than if an army general were to draw up his primary battle plans, and, at the same time, also draws up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the general prepares for battle. We prepare for market battle in the same manner.

So, while I will never be able to tell you with certainty how the market will move in the coming weeks, months, and years, I present you with enough information to know where my primary perspective is wrong so that you can adjust in order to take account for the alternative situation.

By now, I hope you recognize the difference in our analysis approach, other than the accuracy thereof. We strive to view the market, and utilize our mathematically based methodology, in the most objective fashion possible, no matter how crazy it may sound. Moreover, it provides us with objective levels for targets and invalidation. So when we are wrong in the minority of circumstances, we are able to adjust our course rather quickly, rather than fighting the market.

And, to this end, the next rally in the market will likely tell us if a major long-term bear market has indeed begun earlier than I had expected, or if we have one more rally to be seen to new all-time highs before that major long-term bear market begins. Either way, I am still expecting that long-term bear market one way or another. The only question is if the next rally points us to higher highs, or if it only points us to a lower high which would confirm that a long-term bear market has indeed begun earlier than I had initially expected.


Avi Gilburt is a widely followed Elliott Wave technical analyst and author of, 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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