The bear market all began on October 11, 2007, after the S&P 500 Index hit an intra-day high of 1576.09. Who knew that the next 17 months after that would be one of the greatest declines since The Great Depression, a 57% decline... Amazing. And here we are today, another 57% from our intra-day lows of 666.79 on March 6, 2009. Once again, amazing. But I think this rally was much more predictable... in a way.
I still think we have another leg down left in this Bear Market. Go ahead, call me crazy. I mean come on! We have just rallied 57% in under 6 months. It HAS to be a Bull Market right? It might be!
Have we already forgotten what happened the last time the Nasdaq rallied 60% in under 6 months? For God's sake. It was only 9 years ago. Let's just rewind a bit. March 10, 2000: Nasdaq hits intra-day high of 5132.52. Then, 2 and a half years later, on October 10, 2002: Nasdaq hits intra-day low of 1108.49. A 78.5% decline. Hello!
Since we always hear the media talking about how this Stock Market decline was similar to the one in 1929, I thought I'd go back and pull of some charts to compare the two. And guess what, they're pretty similar. The Dow dropped 50% and then rallied 52%. Awesome! But then what happened? We dropped another 87%
Ok enough of that. No one cares what has already happened. The question is, where do we go from here? Well, then answer is down. But why?
Let's think about it. Bear Markets a typically corrective in nature. They take a little back from previous Bull Markets. If you throw Elliot Wave Theory in there, you would know that any corrective down trend unfolds in 3 Waves. Waves A, B and C. Wave A is your initial leg down, Wave B corrects Wave A, and then Wave C ends the cycle. Typically, Wave A will unfold in 5 waves, Wave B will unfold in 3 Waves, and then Wave C in another 5. A simple 5-3-5 zigzag.
If you look at this Bear Market so far, we have had 5 waves down. That completed Wave A. We have had 3 waves up from the lows, this should complete Wave B. Which means... Wave C is still to come, and should unfold in a set of 5 waves. Sure... anyone can just go ahead and label waves everywhere. So the question is where do we get our targets? The answer is plain and simple. Fibonacci. We had a 57% decline from our highs. Wave B should retrace 38.2% or 50% of that decline. We already retraced 38.2% and rallied 57%. So the minimum targets have been met. Bullishness is at an extreme. An all time high. More people are bullish now than they were at the all time highs in October of 2007. Go figure. A complete opposite from our lows in March, when you couldn't find a bull anywhere.
So what are the targets for the next wave down? Well, it's either a retest of the March lows or given that Wave C will equal Wave A, we should end up at somewhere about 450 on the S&P 500 Index. Which would put our beloved Dow at 4000. OH NO! NOT 4000!!! Let me just promise you one thing. It will not be the end of the world if that happens. Just take a second to think about it. The Dow was 4000 only 15 years ago. So it's really not that big of a deal.
In this chart I have kind of mapped out what I believe Wave C will look like. All of my targets are mathematical, so I didn't just pull them out of the air.
So good luck and beware the bear!
0 comments:
Post a Comment