I Told You The Market Will Get Wild - Prepare To Be Whipsawed Again
The Fed. The China trade deal. The House of Representatives impeachment proceedings. The Iranian aggression. North Korea firing missiles. Slowing growth in the world economy. As you can see, there are many issues worrying investors today. And, as the market moves up and down through these large gyrations these last two weeks, one excuse is paraded out after another.
When the market drops, it is supposedly because of “fears about the trade deal.” When the market rallies, I see headlines stating “the market rallies on lowered trade fears.” Sadly, this is the best the media and pundits can do. They really have no clue what is happening to the market.
Last weekend, I noted:
Major support resides between 2600-2766, and I think we will test that support over the coming weeks/months. So, strap yourself in, as it is likely going to be a wild ride.
And, this past week, the futures dropped to within 9 points of our major support region. In fact, I warned our members the evening we struck the 2775 low not to get too bearish since we are likely about to start a rally back up towards the 2930 SPX region. Moreover, as the market pulled back Wednesday morning at the open, I noted in our chat room that I believe the market will hold the 2825 SPX level and then begin a rally. As we now know, the market low that morning at 2825.71 SPX, and we began the rally which lasted the rest of the week.
As we also noted on our charts and in my analysis, the ideal minimum target for this rally was the 2930 SPX region. And, we clearly struck that region on Thursday, and retested it on Friday. So, it has been quite a wild week, but rather predictable thus far.
But, I do not think we are yet done with the downside, as long as we hold cited resistance.
I have said this time and again - I have found no better methodology to understanding the context for the stock market than Elliott Wave analysis. At the end of the day, it is investor sentiment which drives market movement. This same investor sentiment is what provides the “spin” to the interpretation of market news. And, investor sentiment is what we track using Elliott Wave analysis.
Yet, the media and pundits will continue to explain these market movements after the fact based upon their superficial understandings about the financial environment as they attempt to relate it to some supposed news event.
However, our analysts at ElliottWaveTrader.net analyze the market in real time, and provide these turning points before they happen, and without regard to the news. Rather, we base our tuning points upon Fibonacci mathematics. And, as one of our money manager clients noted, “I see the best quants, strategists and technicians the street has and you and your group are amongst the absolute best. My trading desk is floored at turning levels you are able to provide.”
So, as long as our resistance region is respected, the structure presented to us suggests that we will next test the 2600-2685SPX region in the coming weeks. And, I can assure you that the media will find some news to blame for the next decline we would like to see. This is the only certainty to which I can point when dealing with the stock market.
In the smaller degree structure we track, the next time we break down below Friday’s low at 2899SPX it will likely open the door to the next decline phase pointing us to the 2600-85SPX region. While the market certainly may have topped at our minimum target (2930SPX) for this rally struck on Friday, the upper resistance to the market resides between 2977-3004. But, we will not get any initial confirmation that this rally has completed until we break below Friday’s low.
The one main point regarding the context of the current market is that we have likely entered a corrective wave structure. And, while impulsive structures are rather predictable, corrective structures are variable and much less predictable. This is why we see such whipsaw during corrective structures and I expect it to continue.
However, should we continue to drop to lower levels, please keep in mind that our major target for this bull market still resides in the 4000 region. That means that should we drop below 2700, we will have a target overhead that is almost 50% higher before this bull market completes. So, for those of you that are focused on the bigger picture, that means this next decline will begin to offer a sale. Moreover, that sale can even get better, as this correction can still be as deep as the 2200 region if we break below the 2600SPX region. But, when we are below 2700, the potential upside will be much greater than the potential downside, so you must focus upon that potential.
And, for those of you who are looking for ideas of what you can consider a “buy,” I would suggest you follow the StockWaves analysts, as they have highlighted a number of stocks on their buy list. Lastly, I have read so many analysts over the last year suggesting that you “stay the course,” since they do not have the benefit of understanding the market context in the way the Elliott Wave analysis provides to us. In fact, I warned many of them that we would see a 20-30% market decline when we broke 2880SPX last year, and that is exactly what we got despite their disbelief.
As the market has now gone sideways for the last several years, there has been much opportunity lost by those who simply “hold,” or “stay the course.” Moreover, the market could continue this type of action for as long as the next year. Much will depend on how the market progresses into the fall, and that will likely provide us with assurance of how the market will progress over the coming 3-4 years.
Those that have followed our work raised some cash last fall when the market broke down below 2880SPX. We then moved that money into TLT when it broke below 113.
At the time, back in early November of 2018 and before the rally in TLT even began, I noted that my ideal target for TLT was the 135/136 region. And, in my last update, I noted that I was going to sell my remaining TLT positions into my modified 138.50-140 target region.
That means that, while many others were “holding,” or “staying the course,” we have now cashed in profits of more than 20% with the money we took out of the market last fall. I will now be looking to redeploy that cash into the stock market during this correction/pullback.
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. He recently founded FATRADER.com, a live forum featuring some of the top fundamental analysts online today to showcase research and elevate discussion for traders & investors interested in fundamental rather than technical analysis.