Narrowing the focus from two hundred and thirty years to the last twenty, shows major bull to bear phase transitions.
The S&P 500 (SPX) monthly chart, courtesy of Trading View illustrates the action from the late twentieth century bull market in US stocks to mid – 2020.
From an Elliott Wave perspective, the bull market peak made in early 2000 was the termination point of Super Cycle wave (III) of a developing five wave pattern that began in 1790. From 1999 to early 2000 there was intense speculation, and a buying mania primarily in the technology sector of US stocks. A good example of the mania is Qualcomm Inc. (QCOM) which in one year increased almost 3000%!
This intense buying mania had not been seen since the late 1920’s. When utilizing Elliott Wave theory, you need evidence from the dimensions of, time, momentum, and sentiment to justify wave counts. Significant market turns require significant evidence. The buying manias of the late 1920’s and late 1990’s correspond with the type of sentiment needed at the Super Cycle level. Hence the 1929 peak is labeled Super Cycle (I) and the 2000 top is Super Cycle (III).
The action following the early 2000 high until March 2009 is an Elliott Wave – Expanding Flat corrective pattern. They are composed of three sub-waves, the first – wave “A” itself sub divides into three smaller degree waves. Wave “B” the second wave also forms in three waves that terminate just beyond wave the wave “A” point of origin. The third wave “C” subdivides into five waves and ends just beyond the termination point of wave “A”.
From an Elliott wave perspective, the entire structure from 2000 to March 2009 is a bear market correcting the sixty-eight-year secular bull market from 1932 to 2000. The nine-year pattern 2000 to 2009 constitutes Super Cycle wave (IV) which has a Fibonacci time relationship with Super Cycle Wave (II) 1929 to 1932 – three years. Rounding to a year, the ratio is 3/9 or 1/3.
In Elliott Wave theory a larger degree correction is usually longer in time and larger in price than the next lower degree.
For the SPX, the largest decline of the Elliott Wave – 2000 to 2009 bear market was 57.6%, more than the SPX 1973 to 1974 decline of 48.1%.
The Dow Jones Industrial Average (DJIA) also formed an Elliott Wave – Expanding Flat from 2000 to 2009. Its largest drop during this time was 54.4%.
The DJIA 1973 to 1974 bear market was 46.5%.
The DJIA 1937 to 1942 bear market was 52.6%.
Additionally, Elliott Wave corrections of the same degree usually have a Fibonacci price relationship. Super Cycle wave (II) for the DJIA 1929 to 1932 was an 89.4% decline, Super Cycle wave (IV) fell 54.4%. The ratio of 54.4/89.40 is .608 – remarkably close to the Fibonacci Golden Ratio of .618.
Summary: The DJIA 2000 to 2009 Elliott wave correction is longer in time and larger in price than any downside move since 1932. The supposed Super Cycle waves (II) and (IV) have Fibonacci price/time relationship.
The subsequent secular bull market from March 2009 in US stocks is highly likely – Super Cycle wave (V). If so, has the wave reached its ultimate peak? If not, how much higher could it travel? These questions will be discussed in my next Blog.