Sentiment Speaks: You May Not Believe My 2021 Targets

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
April 19, 2021

Ever since the market crash in February and March of 2020, so many investors, authors and analysts have been on high alert for the next shoe to drop.

In fact, I can no longer count how many articles (along with comments) I have read which have called this market one name or another, while looking for the next crash. While such descriptive name calling included a “bubble,” or “topping,” or having gone “too far too fast,” or “not supported by the fundamentals,” or having an “overly heated PE ratio,” it is clear that this rally has taken many by surprise, and many still do not believe in its ability to continue on further.

Yet, as we were bottoming back in March of 2020, and as I told the members that I was “buying longs again,” I maintained an expectation that the market would rally to a minimum of 4000SPX, with strong potential to extend as high as 6000SPX. In the days right before we actually bottomed in March of 2020, I wrote in a public blog (and reiterated this exact language two days later in a public article):

until I see evidence to the contrary, I am going to be looking for bottoming signals in the coming weeks, followed by more bullish signals supporting the potential for this market to set up a multi-year rally to 4000+. So, the next few weeks are going to be of utmost importance as to how the next 3 years will take shape for the equity markets.” - March 20, 2020

When I told my members that I was going long in March of 2020 as we were approaching the 2200SPX bottom, many thought me to be quite mad. And, those were comments from my own members who were paying for my advice and analysis. In truth, I don’t blame them. The fear at the time I went long was quite palpable.

Now, it is actually quite entertaining to go back to March 2020 as we were approaching the lows and review the comments posted after I published my expectations of a rally to 4000+ in public articles (and these are only a representative sample):

I must admit the level of overvaluation in the main market (145% of GDP at peak) does not allow a shift to even higher overvaluation in these very difficult recessionary/depressionary circumstances IMHO. I don't think you will see the next all-time high for decades”

it will be 2000 this week and eventually the 50% retracement lower. I expect to buy SPY at 200 and again at 1750 ... I think in thirds and hedge, so not trying to catch the bottom. It is impossible unless you continue to buy all the way down.”

Of course, it's very possible for the market to crash --maybe even more than 60 %. We are in the middle of a major pandemic which is shutting the world down. I think it has a lot more to do with that than any technical analysis. . . clearly the bottom may be no where in sight and more importantly bankruptcies and liquidations could be in the offing. Unless we come up with a medical solution, I see major downside from here.”

Kind of amusing. You seem to be in denial of reality. Markets are emotional and when they get hysterical with fear the technicals go out the window.”

I said many times and I will say it again: this is a fundamental selloff, not a technical selloff. The bottom will be defined by the fundamental, not the technical.” 

This next series of comments came from the most vociferous of posters who simply could not fathom I would dare to claim we could rally to 4000+ when we were down in the 2200SPX region:

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 . . . 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 . . . 

Then what is going to fuel this next rally to 4000? Magic? Paint me a scenario in which the market turns around and goes straight to your price target.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 . . . You honestly going to tell me that we're going to 4000 when earnings start coming out that shows a 33% decrease? What happens when we print, say, a -12% GDP number Q2 of this year? Are markets still going to 4000 then? . . . Your blind faith in the charts, so much so that NOTHING happening in the world can affect your view, is just plain ridiculous. . . . But the market magically reversing and shooting up to 4000 is absurdly improbable. All I see here is the absolute arrogance of people who claim to be able to tell what is likely to happen based SOLELY on a chart.”

I sit here today truly wondering how these same people now view the market. Do you think they have come to recognize that the fundamentals are not what drove the market? Do you think they question the manner in which they approach the market?

To be honest, I highly doubt it. I think they have found one way or another to rationalize the emotional nature of the market action, and will only find themselves in the exact same befuddled state when the market again takes a turn which cannot be explained by their perspectives.

Unfortunately, people do not learn from history and always find a way to rationalize what they believe . . . the facts be damned. As Ben Franklin noted, “[s]o convenient a thing it is to be a reasonable creature, since it enables one to find or to make a reason for everything one has a mind to do.

This next series of comments is one of my favorites, and was written by another “contributor” on Seeking Alpha, who, at the time we were striking 2200SPX, took quite strong objection to my long-term bullish expectations because I do not share his fallacious belief that the market follows the economy:

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 Ari'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.”

I do not have to wonder how this Seeking Alpha contributor views the market, as he still tells me how wrong I am to this day. But, then again, it’s only “chart magic.” For investors and analysts like this contributor, I believe the words of Isaac Asimov are quite instructive: “Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won't come in.”

Or, as Yoda said, "Only the Sith deals in absolutes."

Then, exactly one year later in March of 2021, another commenter came back to my article to note:

Hard to believe S&P is a hair's breadth away from 4000 now, even with the recent correction.”

And, while there were a minority of posts in March of 2020 that actually took heed of my prognostications, this one was my favorite:

Hard to argue with this man's results. Most of the time when he points his bat at left field and makes a prediction, despite it being regarded as ridiculous by the general consensus, he hits a home run with a far better "batting average" than the other players.

I can assure you that my analysis has nothing to do with “magic,” despite so many that are ignorant of my methodology calling it such. In fact, we gladly teach it in our service for those that are willing to learn. And, those that have taken the time to learn have all proclaimed the same sentiment as declared by this one member: "Coming here was transformative.”

As we now stand just below 4200SPX, I want to remind you that my expectation at 22000SPX was that we would see a minimum of 4000SPX. In fact, I noted at the time that the structure of the rally off the expected 2200SPX bottom would tell me if we would be able to reach the 6000SPX upper target that I maintained as an ideal target at the time. And, as I have reiterated many times since, that 6000SPX region seems to be a good target as we stand today.

Yet, I know that is quite hard for many of you to still believe. Well, if you were scratching your head at my prognostication when we were at 2200SPX, and have missed an almost 100% rally in the SPX since then, are you going to miss the next 50% rally?

For now, let’s review where I foresee the market to head from here over the coming months.

Before I left for my Passover holiday, I provided my outline for the market which suggested that the 3850SPX support was important in the near term. If we held that support, I thought we could begin a direct and strong rally towards the 4400SPX region.

In fact, in mid-March, I wrote an article entitled “The March Rally Was Good – April Will Be Better.” As we now know, the market bottomed at 3853SPX, and the rally we have seen off that low has been quite impressive and I believe we have much higher to go in 2021.

While my expectation was for a 550-point rally off the 3850SPX support region, we have now traveled over 300 of those 550 points, and in only three weeks. So, while I see potential for us to see a pullback/consolidation to begin over the coming week or so, I am seeing the 4400SPX region as a nice round target to be struck as we move into the month of May.

But, please recognize that the 4070-4100SPX region is now our new support region. As long as we remain over that support, then I foresee this rally to continue until the 4400SPX region in a more direct fashion. Should we break that support – which I see as the lower probability scenario at that time – then I think we will re-test the 3950-4000 region before we see another even stronger rally to the 4600SPX region. But, again, this is only my alternative scenario at this point in time.

Overall, I see the market striking at least the 4600SPX region within the 2021 calendar year, with potential to even rally as high as the 4900/5000 region as we move into the fall of 2021 time frame. I know this may sound quite unbelievable to many of you at this time, but as long as this structure continues to respect the support regions we continue to raise as the rally progresses, then that region is a reasonable target for 2021 based upon our Fibonacci Pinball structure. So, you tell me - is this a more unbelievable target from here as compared to when I called for 4000+ off the 2200SPX lows?

Of course, I can always be wrong in my assessment. Clearly, I am human and cannot perfectly prognosticate the path of these non-linear markets 100% of the time (whereas our members track our accuracy to 70-80%). So, for those of you looking for a crash again, I suggest you first focus on the 4070-4100SPX region of support. For if the market continues to hold that support, we have a direct path to the 4400SPX region. It will be from that region we may finally see a 5-7% pullback before we prepare for the summer rally into the fall 2021 time-frame. However, should the market break one of our support regions, then we will have to re-asses. But, for now, the market seems to be following through on the standard Fibonacci Pinball structure I have been tracking off the March 2020 lows quite accurately.

I want to make one last point in this weekend’s article. In my article published last week, I was asked why I bother arguing with commenters in my articles, especially the ones who post such ridiculous comments week after week. (In truth, it makes me wonder why the same negative commenters come back to my articles week after week if they think I do such a terrible job?) Well, my answer is simple.

You see, my articles are read by 20,000 readers each week, and, oftentimes, many more than that. So, when someone posts a comment to my article that I view as either misleading regarding my perspective or presents my perspective in an inaccurate manner, I have a responsibility to set the record straight.

And, please do not think that my responsibility is solely to the individual commenter. In fact, quite often the commenter is acting as just a troll. Rather, my responsibility is the 20,000+ readers that are potentially reading my article and the comments section. I do not want them walking away with the wrong perspective about what I said or am saying.

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. And, until such time that the market proves our primary perspective is wrong, we will continue to follow our primary perspective, which at this time is pointing us to the 4400SPX region as long as we hold over 4070/4100 support on the next pullback/consolidation.

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 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, while I hope I am helping many of you in maintaining an objective perspective within this non-linear environment we call the stock market, I want to wish you all well in your future trading and investment endeavors. As of now, I maintain my long-held expectation to see the market at the 6000SPX region in the coming years, of course, unless the market tells us otherwise. And, thus far, it has provided us rather clear and accurate guidance.

Avi Gilburt is a widely followed Elliott Wave analyst and founder of ElliottWaveTrader.net, a live trading room featuring his analysis on the S&P 500, precious metals, oil & USD, plus a team of analysts covering a range of other markets.

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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].

The term “carat” comes from “carob seed,” which was standard for weighing small quantities in the Middle East.

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