Is the Market About to Crash?

As the market began its historic rally off the March 2020 low, many were convinced that we had begun a bear market, states Avi Gilburt of ElliottWaveTrader.net.

In fact, I witnessed many people posting about short trades in which one cannot lose during that rally. The common perspective was that due to the highest Covid death rates being reported during the spring of 2020, economic shutdowns being seen all over the country, and record unemployment being reported, there was no way the market could continue to rally. It was simply impossible in most people’s minds.

Yet, continue to rally we did. Imagine if there was someone who warned you that we were going to 4000+ from the 2200SPX region, and who actually turned strongly bullish as we were hitting the lows. You would think that more and more people would be interested in what caused this person to maintain such a strong bullish bias in the face of utter despair.

Based upon history, it seems as though the “chart magic” seems to be winning.

But, have any of these other analysts or pundits learned from this experience? NOPE. In fact, they are all back at it again, claiming that the Delta variant or inflation is going to crash the market. So, as more and more Covid cases have been reported these last several weeks, the market has only gone...UP!

And, as for you inflation bugs, well, I suggest you look at the bond market, the gold market, as well as the crash in the lumber market, among many other factors not supporting the inflation perspective. But to be honest, none of that is material, as that will never serve you well in maintaining on the correct side of the market trend. So, in truth, it is best to ignore both those factors, along with anyone else who tries to explain the market based upon those perspectives. They will continue to be wrong.

In fact, I am quite certain more writers and analysts will continue to write many, many more articles calling for a top or crash as the market continues to march higher in the coming year or two. This was actually my inspiration for the title to this current missive. They will continue to write bearish articles with many, many, many parts until the market actually tops several years out, and then claim, “I told you so.”

Therefore, I am going to forewarn you. As you know, I am expecting a 200-300 point pullback. It will certainly make the bears growl. But you should ignore the bears. This will simply be another buying opportunity. So, it may be best if you stop reading bearish authors and stop listening to the financial news during the pullback. I can assure you that they will drive you towards the bearish views of the market and prevent many of you from being able to buy the next pullback. And, while the news and pundits will certainly be bearish, the market is not.

Now, if you had been following our work, you would know that, despite being at the depths of despair when we were hitting the 2200SPX region in March 2020, we were calling for a bull market move with a minimum target of 4000, and with an ideal target of 6000SPX. While many thought this call to be nothing short of insane due to all “news” being reported at the time, we clearly have exceeded my minimum target, and we now have our sights on my ideal target. Therefore, the news was worse than meaningless. It actually significantly hurt your performance if you paid any heed to the news while making investment decisions over the last year and a half. Have you learned your lesson yet?

I know many of you are probably sick and tired of hearing me drone on and on about how one should ignore the news in order to increase your investment performance. And the spring of 2020 was simply an extreme example of that upon which I rail almost weekly.

As we came into 2021, I outlined to those willing to listen that I expected at least a 20% continuation rally in the S&P 500 (SPX), and I would prefer for us to strike at least the 4600SPX region this year. And, at the time, the SPX was in the 3750SPX region, so, again, many said to themselves “there goes crazy Avi again.” Thus far, the market has provided us with a 19% rally in 2021, and I still would like to see us rally to 4600SPX within 2021.

I am going to take a moment to explain some of our Fibonacci Pinball methodology so that you can understand why I have expected us to rally to the 4440-4600SPX region before we see a 200-300 point pullback.

Assuming you now have a basic background in EW analysis, I will remind you that a bull market rallies in 5-wave structures and corrects in 3-wave structures. Moreover, since the market is fractal in nature, meaning it is variably self-similar at all degrees of trend, waves 1, 3 and 5 within a 5-wave structure are comprised of 5-wave sub-structures as well.

With this understanding, we can add further to our knowledge base. Based upon our Fibonacci Pinball structure, wave 3 within wave [3] usually targets the 1.00-1.236 extension of waves [1] and [2]. In our case, that is the 4440-4600SPX region. And, for this reason, I was quite confident we would see at least 4440SPX before we saw that 200-300 point pullback I still expect.

Since we are in our target region, I am now going to make this rather simple for you. Micro support is 4423-35SPX. Should the market break below that support in the coming week, we have an initial signal that the wave 4 pullback has potentially begun. It becomes significantly more likely on a follow through below 4373SPX.

But, if we hold that support, and rally up to 4490SPX, then 4464SPX becomes our new support, and as long as all pullbacks then hold over that support, we are likely targeting the 4550SPX region in the coming weeks.

If you would prefer greater detail of our analysis on a daily basis as we track through this more convoluted wave structure, you can feel free to join us for a free trial at The Market Pinball Wizard. My current expectation remains that we see a 200-300 point pullback in the coming weeks, which will set up a rally to 4600+ later this year.

For most people, it means you should look for opportunities to raise some cash to take advantage of the pullback I think we will soon see. Keep in mind that I believe that the next major rally phase can take us to 4900/5000 after this next pullback completes.

I would like to take this opportunity to remind you that we provide our perspective by ranking probabilistic market movements based upon the structure of the market price action. And, if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But here is the most important part of the analysis: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.

As I have said many times before, this is no different than if an army general were to draw up his primary battle plans, and, at the same time, also draws up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the general prepares for battle. We prepare for market battle in the same manner.

So, while I will never be able to tell you with certainty how the market will move in the coming weeks, months, and years, I present you with enough information to know where my primary perspective is wrong so that you can adjust in order to take account for the alternative situation. And, until such time that the market proves our primary perspective is wrong, we will continue to follow our primary perspective, which at this time is pointing us to much higher levels in the coming years.

By now, I hope you recognize the difference in our analysis approach, other than the accuracy thereof. We strive to view the market, and utilize our mathematically based methodology, in the most objective fashion as possible, no matter how crazy it may sound. Moreover, it provides us with objective levels for targets and invalidation. So, when we are wrong in the minority of circumstances, we are able to adjust our course rather quickly, rather than fighting the market like many others you may read have been doing during this entire rally off the March 2020 lows.

So, while I hope I am helping many of you in maintaining an objective perspective within this non-linear environment we call the stock market, I want to wish you all well in your future trading and investment endeavors. As of now, I maintain my long-held expectation to see the market in the 6000SPX region in the coming years, of course, unless the market tells us otherwise. But please approach the market with the respect that a bull market deserves, as surprises usually come to the upside, and we likely have much higher to go before this bull market ends.

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.