E Why The Stock Market Rallied So Fast

One of Elliott’s Rules was called the “Rule of Alternation”, that is if Wave 2 was simple, Wave 4 would be complex and vice versa. Wave 2 and 4 could never be the same pattern, no matter what.  Wave 2 (1966-74) was a simple expanding flat (x-y-z [X], a-b-c [Y] and a-b-c [Z]) lasting some 8-9 years (same as [X] of SC Wave IV 1999/2000-2009).

The problem is: the sideways x-y-z pattern of 1999-2009 was too similar to the “1966-74 wave pattern”. This makes Wave IV the complex wave pattern in the sequence. The fact that Wave Y of IV has gone this high and looks to be going higher in the years to come, goes beyond the scope of a normal irregular top (like the one we are now since December 2018, Wave Y of “B”, see chart below).

Normally, in past 80-90 year cycles, we have seen huge sell-offs (e.g., 1929-32 down 89%, the deflationary bear market of the 1840-1850’s, and the British Panic of 1772). Each one of these depression sell-offs have occurred right before major wars (e.g., American Revolution, American Civil War, WWII).

There are a lot of forecasters that are forecasting doom and gloom in the next few years. In fact, there are too many of them.  As a contrarian, this concerns me, as I used to be in that camp. Based on Elliot Wave and my cycle work, I think the worst we see is a repeat of 2007-09 by 2024. I see a lot of market pundits touting silver and gold as hedge against the coming calamity.  My methods tell me different: we are in a continuing bear market in precious metals like gold and silver until 2023 (more on this sector at another time).

Getting back to the stock market, I see a nice pull back in May called Wave “b” of Y associated with the 20 week cycle before we go much higher into July of this year (S&P 500 3170?). As I write this article (April 26, 2019), I see at least one more move higher into April 29th, probably above 2960, before the market corrects in Wave “b”.

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Gary Anderson 2 years ago Contributor's comment

2007-2009, close, real close, to doom. But better than Great Depressions.

Brad Gudgeon 2 years ago Author's comment

Yes, my sentiments exactly!

Gary Anderson 2 years ago Contributor's comment

No that the clown in chief is seeking tariffs again, all bets are off. If Wall Street wants to stop the madman, they need to take the market down. They have no other hope.

Alexis Renault 2 years ago Member's comment

How can I learn more about how Elliott Wave Analysis works?

Brad Gudgeon 2 years ago Author's comment

The best way, in my opinion, is to become a subscriber to my service. Also, buy the original works of R.N. Elliott.

Barry Glassman 2 years ago Member's comment

Is X-Y-Z your own term? I haven't heard that before?

Brad Gudgeon 2 years ago Author's comment

XYZ is like ABC only in an uptrend a bull flag where Y takes out the previous impulse. In a bear flag it is labeled WXY.

Brad Gudgeon 2 years ago Author's comment

The market looks toppy in here. A 10-12% pull back would not surprise me in the month of May.

Kurt Benson 2 years ago Member's comment

Yes, I agree.