We’re due for a prolonged bear market
I often read articles, along with the comments, to gauge the stock market’s sentiment from an anecdotal perspective. I recently noticed a quote by investor Sir John Templeton:
“For 100 years optimists have carried the day in U.S. stocks. Even in the dark ’70s, many professional money managers, and many individual investors too, made money in stocks, especially those of smaller companies.
“There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up. As national economies become more integrated and interdependent, as communication becomes easier and cheaper, business is likely to boom. Trade and travel will grow. Wealth will increase. And stock prices should rise accordingly.”
This is certainly an appropriate assessment of the past 100 years. But what happens if we are now approaching an event that we only experience once in a hundred years?
I have written bullish stock market articles for many years. And I still think we have a number of good years ahead of us. However, the same patterns that profitably guided us on the long side of the market are showing a different future.
Those who have followed me for a number of years have read calls that did not make sense at the time but often came to fruition. Some include the top of metals in 2011 (when most of the market was certain of $2,000-plus an ounce for gold), the rally in the dollar from 73 to 103 (when most were certain that quantitative easing would cause the dollar to crash), the bottom in gold in 2015 (when most were certain of sub-$1,000 gold), and the S&P 500 Index’s SPX, -2.85% rally to 3,000 points (yes, I was off by a few points on this one), just to name a few.
I have outlined the methodology I use to identify major turning points, yet many still assume I use voodoo or analysis of goat entrails.
But as you can see from the attached chart, I am looking for wave 3 off the 2009 lows to top out, and to then begin a 30% correction. However, once that correction runs its course, I think we will see several more years of a rally before this bull market, which began in 2009, will come to an end. And, worse yet, I think we can enter a bear market that can last as long as 20 years, rivaling the depths of the market during the Great Depression.
You see, when we top out in wave V of (III) on my monthly chart, the ensuing wave (IV) is of the same degree as the Great Depression, as that was the wave (II) within this very long term 5-wave Elliott Wave structure. And while we know that history does repeat itself (maybe not exactly, but it certainly does rhyme), I think the probabilities of seeing a similar environment to that of the Great Depression will be quite elevated, especially as we approach the bottom of the c-wave of wave (IV).