BullBear Trading: Stock and Financial Market Technical Analysis

Secular Long Wave Building Towards 2020 Final Top

(The following is the Introduction to the latest BullBear Market Report, "Secular Long Wave Building Towards 2020 Final Top")

I've been maintaining for quite some time that the current bull market is the final 5th wave of a Long Wave that goes back to 1949 and that when it comes to an end it will represent a paradigmatic shift of multi-generational proportions.  Financial, economic, political and societal crisis will become the order of the times.  The process leading up to the inflection point is likely still in progress.  In this report I'll detail the technical reasons why we may see an abrupt, tectonic shift in the next 6-12 months that will usher in a multi-decade epoch of adjustment and transformation.

Before I get into the analysis, I want to emphasize that while the process of change may entail a great deal of pain and woe, it is necessary and inevitable and part of the natural cyclic movements that all human-created structures transit.  I don't consider this to be "gloom and doom".  It is what it is.  It's simply a matter of recognizing the truth of the situation to the best of our ability and dealing with it accordingly.  As traders and investors and human beings, neither undue optimism nor unwarranted pessimism serve our success and well being.

The current technical setup bears a remarkable resemblance to that which preceded the end of the 2015-2016 Wave (2) of V correction. Nothing is more bullish than a failed bearish technical setup, and the "melt-up" thesis, or some variation of it, is likely to play out here.  After failing to break down from what was otherwise a perfectly reasonable intermediate term bearish scenario (similar to the failed breakdown in May 2016), the market is most likely setting up for new SPX highs and an eventual Wave (5) of V breakout run for big caps from the 2018-2019 Wave (4) correction.

There are many different scenarios that could play out here, but my overall take, the basis for which will be shown in this BullBear Market Report, is that US big cap markets are in the context of a topping process that terminates a 70 year Long Wave that started in 1949.  The technical topping process began in 2018 and likely has 6-12 months to go before fully complete.  The early 2018 and October-December 2018 declines served as  "shots across the bow" which began to transition long term technicals into bear market mode.  This is somewhat analogous to the way that 1998 began the long term technical shift and set the stage for the final 5th wave rally leading to the 2000 top as well as analogous to way that the early 2007 corrections set up the eventual final 2007 price top.

The final Wave (5) rally will be progressively technically weaker and will serve as a distribution opportunity for sellers.  Long term investment in equities is basically over and this last rally has about 20% upside potential and is likely to be of less than a year in duration, so is more of an intermediate term swing trade than a long term investment position.  Investors and traders  that are sitting on profits in any time frame need to take the this final rally as a last chance opportunities to exit.  There is already much evidence that this is precisely what corporate insiders are doing.

Here's a weekly chart of SPY which gives my basic view of the unfolding very long term topping process:

Here we are in the final stages of a corrective triangle Wave (4) of V setting up the final 5th that will finally peak approaching the upper trendline of the channel from the 2011 low.  The Wave (5) rally will begin from what appears to be a reverse head and shoulders pattern (a variant of the Elliott Wave triangle) with a measured move target about 20% higher from current levels. We can expect some additional volatility in the area of the highs as the market churns out lingering concerns regarding Fed policy and the Trade War. 

Economic indicators have sagged much as they did in 2015-2016, painting a similar picture of an economy that is just getting ready to roll over into recession, only to see those indicators back off from potentially bearish trends.  Similarly, we are likely to see some easing of bearish economic signals as additional Fed accommodation filters through the system, giving a short term prop to the economy while doing nothing to abate longer term processes.  It's important to keep in mind the Very Long Term scale and degree of the top we are tracking here.  It's a process that is likely to stretch out far longer than anything ever seen before.  Even after the actual wave high, US big caps could see a series of b-wave price highs within the context of the initial stages of the bear market, dragging out the process even longer even as the smaller issues and ex-US markets are steadily declining.

Before I get into the technical center of this report, I want to offer some more fundamentally inclined commentary on the current and approaching situation.

Since 2012, in the wake of the 2011 final bear market crash, I recognized that a new bull market was starting that was based on Central Bank intervention on a scale and in a style that was unprecedented.  I said at that time that there could be two possible outcomes:  First, the optimistic view that the monetary actions of the central banks would foster dynamic growth industries in new tech that would produce a long and lengthy 5th wave equivalent to the 1982-2000 bull market.  Second, the pessimistic view that the new age of monetary intervention would serve to only inflate asset price bubbles and further redistribute income to the elites, producing a shorter 5th wave that would end in a debt bubble implosion marking the end of the debt consumption monetarist system.  I think there is far more than enough evidence at hand to conclude that the second view is what is playing out...

  

Read the full BullBear Market Report

  

  

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