Sentiment Speaks: OMG - It's A Bear Market

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
March 15, 2022

This week, I am going to give you a two-for-one in this update. I am going to provide an update to my last TLT article, as well as a quick update to my market perspective.

But, first, I want to provide you some quotes that I have seen over the past week from just within the comment section of my last article:

“Recession fears, and stagflation fears are building”

“it looks like market has unlimited supply of sellers”

“This could be just the beginning of a 2000-2002 period (growth stock "reset"). 2200-3400 is absolutely possible. In fact, 3400 is highly probable.”

“The melt up is looking like pie in the sky more so as every day passes”

“we have never had this situation, or remotely close. Trillions in fun money, 0% rates for FAR too long, 7.9% inflation print with fuel increases not even fully reflected. Fed is backed into a corner. We'll hit double digit inflation, Fed's hand will be forced in April. 50bps or more. Mr Market won't like this one bit. 5500 is laughable”

And, this was just in the first 10% of comments on my last article. There were many more presenting the same sentiment throughout the rest of the 90% of comments.

It kind of reminds me of the comments I was getting when I was calling for a rally from 2200SPX to 4000+. These two really stuck out.

"I really don't understand articles like these. Pure technical analysis in a time period in which we are facing a once-in-a-lifetime event, as if economies literally SHUTTING DOWN is just something the market is fitting into an unavoidable pattern. . . It is simply silly to predict market moves with technicals when we're facing a series of historic developments in the world. . .

Your analysis seems to suggest that this current downturn is temporary and that the bull market won't truly end until we hit around 4000? That's pure technical analysis without any regard for fundamental factors in the real world. The idea is absurd. We are not going to magically get there on the back of EWT.

Will we hit 4000 eventually? Yes, over the very long term, markets will always go up. However, current conditions suggest that the bull market is over. Rates have been cut to 0. Unemployment is going to spike up. EVERYTHING suggests that we're headed for a recession that will take a lot of time to clear up before we start recovering.

Your entire probabilistic supposition that the bull market is not over SOLELY based on technicals and that we are somehow entitled to another wave up to 4000 while ignoring EVERYTHING happening in the world right now is insane.

I don't see any way forward that would lead to the kind of recovery and massive rally that you've predicted here. At the end of the day, stock prices are tied to economic fundamentals, even though they may swing above or below the fair value. So paint me a picture in which what you say will happen happens. And no, "just look at the chart" is not a good enough justification.”

“Coming from someone who still thinks the bull market of January is alive enough to carry us to 4,000, that's highly unmeaningful... Here is the 2200 exactly that you said the S&P would bottom at before taking the trip back up to 4,000... What do you want to bet the ECONOMY is going to pull it down a lot further and that 4,000 is a lot further away than your charts ever said... THIS bull market did not ever come close to taking us to 4,000, and it is not taking us anywhere ever again because it is DEAD. OFFICIALLY and in EVERY way. Every index is DEEPLY into a bear market now. The bull is dead, and so it can NEVER take us to 4000. What you predicted can NEVER come true now... my own resolution is that this market has a lot further to fall because it is now following the economy, which it long divorced itself from; whereas Avi doesn't believe the economy ever means anything to stocks and has told me so several times last year... So, you have that common sense view, or you can believe Avi's chart magic will get you through all of that and is right about a big bounce off of 2200 all the way back up to 4,000.”

So, now I am going to provide you with the first part of the stock market update I posted to my members this weekend:

"Even before we topped at the end of last year, I warned you that the impending wave [4] that I expected would carry us into the first quarter of 2022 will not likely end until it convinces most of the world, including many amongst you, that the bull market is over. And, based upon many of the articles and comments I see “out there,” as well as many of the posts I see in here, it seems this wave [4] has certainly done its job. In fact, as I was editing this update, I saw a post from one of our members which read: “fundamentals right now suck and absent some good news other than sentiment, I can't see the potential for a sustained rally with current market valuations.”

Consider that most were saying the same thing when I was suggesting we would bottom at 2200SPX, and begin a rally to 4000+. The fundamentals in the market and the world “sucked” at that time too, and no one could “see the potential for a sustained rally” during that time either. But, that is simply how markets work. The fundamentals always suck at the market lows, and no one can ever envision the “reason” as to why the market would enter into a sustained rally when we are at the lows. And, the current sentiment is almost ubiquitously certain that there is nothing that can propel this market to new highs, and certainly not to 5500SPX.

You see, the market had to eviscerate the positive sentiment that was pervasive at the market highs, and cause us to descend to the depths of extreme negativity. And even though I warned you to mentally and emotionally prepare for it, the power that our innate subconscious biological response has upon our consciousness drives most us beyond our ability to reason and rationalize. Therefore, even though I have prepared you for this environment as best as I possibly could, until you are able to overcome your own subconscious biological responses, as shared by the general market participants, it is inevitable that you would be caught up in the negativity.

One only needs to read the articles being published today on most market-related websites and listen to the news about what is going on in the world today to know that negatively has permeated most aspects of the world, financial markets and our lives. Moreover, if you glance at any sentiment indicators throughout the net, you will also recognize that we have reached an extreme in negativity that may have only been exceeded by the point in time when we struck the lows in March of 2020. And many of those indicators are actually at the same levels of March of 2020. So, I want to remind you of what one of our long-time members once aptly noted: “the goal of EW analysis is to analyze sentiment, not participate in it.” It’s time to rise above the crowd if you intend to outperform the crowd. And, our tool of choice to do so is Elliott Wave analysis.

For those that followed our analysis throughout the rally that we called for which began in March of 2020, the only issue we had was that the pullbacks in the various 2nd waves off that low were very shallow and relatively fast. And, based upon Elliott’s theory of alternation, it led us to the expectation that the 4th waves would likely take much longer in time and could be much deeper. So, as I was preparing you for this expected wave [4] pullback, I noted that it should take at least 2 months of time and drop us to at least the 4400SPX region, with potential to take us down to the bottom of our major market pivot.

So, consider that we are now immersed in the longest pullback from an all-time high seen since the fall of 2018. Feel free to check the charts, as that is a fact. While we have seen much deeper drops in less time, the current pullback is not something we have experienced from a timing perspective for over three years. And, this has generated extremes of negativity that will likely fuel the impending wave [5] that I expect can carry us up towards the 5500 region in the coming year or so."

As you can tell, I still maintain an expectation for us to rally to the 5500SPX region. The only question with which I have been struggling is if the current pullback has completed. And, once we rally through the 4300-4350SPX resistance region, we will likely have begun the next bullish phase.

However, if the market is unable to hold the 4170SPX region again, then it makes it much more likely we have not completed this pullback, and we can test the 4000-4050SPX region before this pullback completes. But, make no mistake about it. Sentiment is at extreme negativity that usually marks major bottoms in the stock market.

But, as I also noted to my members:

“So, while the market environment in which we currently reside certainly does not make you “feel” good, try to review the analysis and sentiment indications with a certain amount of objectivity. Now, far be it from me to try to convince you of doing something which makes you too uncomfortable. So, if you still disagree with my assessment, then feel free to remain on the sidelines until the market provides us with greater clarity in its smaller degree wave structure. While I can certainly be wrong, I am simply trying to convey to you what I see in the market based upon my experience. For when sentiment turns towards this negative of an extreme, it almost always precedes an impending major rally. And, I believe the next time we move through the 4300/4350SPX region will likely signal the resumption of the bull market.”

As far as the TLT is concerned, since we clearly broke down below the support I outlined in my last update, I think it has become a high probability that we have seen the low in interest rates. While I think we can still see a corrective bounce, I no longer think that bounce will take us anywhere near the prior highs. In fact, I am not expecting us to be able to exceed the 153/55 region in the TLT. Rather, I think that bounce can set up another major decline in the bond market as we look out towards the last half of 2022 into 2023.

Lastly, I want to remind you that, even though we have been extremely accurate (but clearly not perfect) in our market prognostications for years, we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action, which tracks market sentiment. 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.

Those that have followed my analysis have been quite prepared for most of the market machinations we have seen over these last several years. As we were striking the lows back in March of 2020, I outlined that I expected a rally from the 2200SPX region to at least the 4000 region, with my ideal target being the 6000 region.

As the market rallied strongly off the 2192SPX actual low struck, we entered 2021 in the 3750SPX region. While many were looking for either the market to crash back down again or for a very large pullback, I noted in early 2021 that I was expecting the market to continue its rally to at least the 4600SPX region before we see a pullback. And, even before the market topped out around 4546SPX and began a pullback, I outlined my ideal target for that pullback in the 4170SPX region, to be followed by a rally up towards the 4900SPX region (with the ideal target I shared with our members being 4882SPX).

Well, the market pulled back right down to the 4170SPX region, and then rallied up to a high within 60 points of my ideal target. Now, again, even before the rally topped out, I outlined my expectation for the market to pullback to the 4400SPX region. But, as I explained to our members before the drop began, there was potential for us to drop as deep as the 4100SPX region, since that was the bottom of the major market pivot I had outlined on my larger degree charts. And, after this pullback completes, I have been noting that my next ideal target overhead is 5500SPX.

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. And, until such time that the market proves our primary perspective is wrong, we will continue to follow our primary perspective, which has been guiding us extraordinarily well for many years.

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 and intellectually honest fashion as 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 like many others you may read. So, you will never hear from me that “the market got it wrong.”

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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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