So … this precipitous drop got me interested in the market again.  I’m still 100% cash, so I’ve only been monitoring in terms of what the economy is doing. But, I’m pretty confident in this post, so I may just start trading the general market next week. I’ll let you know if I get in, and what happens.

First, let me start with a picture, then I’ll explain it.

Weekly Dow Since the '08 Top

Weekly Dow Since the ’08 Top

 

This is a weekly picture of the Dow, annotated with Elliot Wave mark-ups.   As a refresher, since I haven’t posted in so long, Elliot Waves generally travel Up in 5 waves and Down in 3 waves, with Up being represented by numbers (12345), and Down represented by letters (ABC). The basic theory behind this is that the entire Universe is ruled by these types of efficient fractal type ratios, so there’s no reason why our own societal behavior shouldn’t follow the same rules. It’s far more complex than this, but I won’t go into that here, as I’ve posted plenty of links to books on the subject in the past.

On to the chart:  First, don’t panic. I really don’t think we’re going to go into a deflationary spiral depression.  I’ve also looked at the Nasdaq and the S&P, and they all seem to be showing that we entered what is a Wave 4 of a rather short-term sideways correction, not a huge downward Wave e of the very large abc correctional pattern that we began in 2000. In light blue on the chart, I’ve shown where I expect the market to go, short and long term. Short term, I expect the market to drop precipitously to around 15225 (Green Arrow), with maybe a relief rally on Monday or early next week, rather then the initial 14,400 I posted yesterday (which was a very quick back-of-napkin estimate). From there, we’ll likely go sideways along something like the pattern I’m showing through Mid 2017.  From there, we’ll be off to the races through 2022/3 to around Dow 22,000.

Why do I think this?  Because these patterns show up time and time and time again at different levels of Degree.  If you stare at charts long enough, like I have, you begin to recognize the beginning of each of these different types of patterns. What we’re living through longer term, right now, looks like a 13 year bullish wave beginning with the ’09 bottom.  Shorter term, it looks like we’re beginning a pattern called an “Expanding Flat” for Wave 4 which will end when it hits the bottom channel, labeled with the number 4.

Now, if the market drops though 15,225, we have a major problem, and this analysis is likely very wrong.  But I don’t expect that … it’s likely that the China panic will continue for a bit, but the central banks will step in and start printing more money to make sure that we don’t enter said spiral. There is no limit to how much money they can print so long as deflation is the dominate force, which it clearly is right now. This Wave 4 correction likely won’t even lead to a recession, as it’s just not at a Degree high enough to ’cause’ one as in ’01 or ’08.  A China slowdown might cause our economy to slow a bit, but probably not too much … I think we (primarily Silicon Valley and the Fed) will lead the world out of this very long period of uncertainty. All bets are off in 2022/3.

I still don’t think there’s ANY reason to have any money in equities right now … the risk is still there that we’ll drop through 15,225 to some god-awful lows and best case we’re probably just going to sideways for a couple years.

It’ll be interesting to see if I’m right.

 

 

 

 

Leave a Reply