Today, August 18, 2020 the S&P 500 (SPX) broke above its February 2020 top to make a new all-time high. My April 1, 2020 Trading View SPX post speculated a new bull phase was underway that could continue until sometime in 2021. Todays breakthrough is an important confirmation of the forecast.
Today’s new all-time high could have a profound effect on the long-term direction of US stocks for decades. The bull phase that began on March 23, 2020 could be wave “C” of an Elliott Wave – Ending Diagonal Triangle (EDT) .
The long -term forecast chart 2009 to 2043 illustrates an Ending Diagonal Triangle.
Within Elliott Wave theory there are three types of motive waves – five wave directional patterns.
- Impulse waves – These occur about 70% of the time, they are composed of three sub waves separated by two corrective waves.
- Leading Diagonal Triangles- they happen about 20% of the time, occur in the first wave position, have a wedge shape, and the fourth sub wave always overlaps into the territory of the first wave.
- Ending Diagonal Triangles – happen about 10% of the time. They occur in the fifth wave position, have a wedge shape, and the fourth sub wave almost always overlap the area of the first wave. Another factor – EDT’s are the only motive wave in which all sub waves are composed of three wave patterns.
Based on the proportionately large size of the February to March 2020 decline, the most likely Elliott Wave count is that Cycle wave “I” of an EDT is under construction. An alternate count for the February to March crash has it as the fourth wave of a developing five wave structure from the March 2009 bottom. This is a low probable count because the 2020 decline is almost twice as large as the prior largest correction since 2009.
Assuming the bull trend continues, it won’t matter which of the two counts is correct. The EDT wave count could be an important factor in the next bear market.
So far, my blogs have focused mostly on the price dimension. My next blog will examine the time dimension, speculating on the termination date of the entire secular bull market that began in March 2009.