New All-Time Highs By Year End But It May Not Be What You Expect
This market has been difficult for both the longs and the shorts for months now. While it has been unwilling to break down, it has also been equally unwilling to break out.
What makes me scratch my head even more of late is that the Fed has come to the table with its “not-really-QE-4” of $60 billion a month. For those that remember, QE1 was approximately $100 billion a month on average, QE2 was $75 billion, and QE3 was $85 billion. But, to see the Fed coming forth with this type of liquidity injection when the market is hovering just below its all-time highs is a bit surprising. Yet, the market is still unable to break out.
I know many of you assume that the Fed is able to control our market. But I have written articles in the past outlining the facts of history which show this is not really the case. The problem is that the fallacy has become so widely propagated that many now believe this to be truth. Unfortunately, I think it will set many up for a much bigger fall, but that will not likely be seen until the mid to late 2020s. At that time, the market as a whole will likely recognize that the emperor is not really wearing any clothes.
For now, we are left to deal with a very complex and difficult market environment. In fact, over the last several months, we have seen setups to the downside which have invalidated, as well as setups to the upside which have invalidated. Yet, my near-term expectations remain the same.
While I have no immediate downside setup in place as I write this article, I do have a topping structure being traced out. Moreover, I am still of the belief that the market is setting up to take us back down to at least the 2820SPX region. But, the potential remains for it to be deeper than that and can take us down into the 2650-2700SPX region (and it can happen much faster than many expect). Much will depend upon the downside structure as we drop.
Moreover, I have outlined to the members of ElliottWaveTrader.net in a very detailed update this past week how I view that as a buying opportunity. You see, when both the larger degree bearish and bullish patterns expect this drop to kick off a rally, that often presents us with a high probability buying opportunity. In fact, I think this can lead us to a new all-time high, and I even share with my members what I think will outperform on that rally.
However, I want to warn you that I also think that rally can set up that larger degree “crash-like” drop, the potential for which the market has been telegraphing for quite some time, yet has amazingly avoided until now. And, much will depend upon the structure of that rally which I expect can take us into the year end of 2019, and potentially into the early part of 2020. I have noted many times how this market seems to be playing out fractally as it did in 2015-2016, and I think this may repeat again.
At the end of the day, Ralph Nelson Elliott outlined to us 80 years ago how corrective market action frustrates investors and traders alike on both sides of the trade, as much of the action is variable in nature. This is why we have seen as much whipsaw action as we have. But, understanding the market context allows you to place the market into appropriate perspective. And, when you understand the market's greater perspective, you can adjust your positioning accordingly, as I have advised my members.
Ultimately, I am still of the belief that the long-term structures are pointing us to the 3800-4100SPX region before this bull market off the 2009 lows completes. And, I also think it can last a Fibonacci 13 years from the 2009 lows. However, I also think we can see a much bigger drop in 2020 than most believe at this time, which will set up the next and final multi-year rally before a real bear market returns. Moreover, with the Fed now coming to the table with another $60 billion in liquidity every month, I am quite sure any expectation for bigger downside in 2020 is likely off most people’s radar screen. I mean, you can’t fight the Fed... right?
See chart illustrating Avi's wave counts on the S&P 500.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.