Big inflection levels and multi asset analysis
An overview of critical swing levels in important assets.
We have two interesting things happening. One is we have multiple assets that tend to be important risk on/off signals at important levels and also we have some very notable divergences between assets that usually strongly correlate. This piece is going to look into these and how we can build plans.
We’ll also cover the three different types of bear moves we could have. From a relatively friendly corrective crash to a full blown macro bear break and failure of the established bull market.
SPX
I think this 161 is the inflection level of our decade. Through 2019 - 2021 I did extensive testing of topping signals and I found these suggested this 161 should be an incredibly important level. While nothing absurdly dramatic has happened at this point, we’ve seen a lot of confirmative active that this is a big level.
161 rejections prelude crashes. This is true on small timeframes (And we’re shown many of these in real time) and it’s historically true of large timeframes and newsworthy crashes. If markets are repeatable (And I believe they are, it’s my whole premise), a 161 rejection here could foreshadow a crash.
We’d be talking about a real crash here. Where the market would enter into a consistent downtrend, there’d be blistering rallies but they’d conform to bear market rally rules and hold lower highs and the crash would not stop until it had, at least, spiked out the low of March 2020.
The scope of a true a crash in indices could be monstrous. From charting norms I see three possibilities for a bear. We’ll cover them from learn harmful to most.
The least harmful is it not “Really” being a crash. It just being a correction but the correction being big because it’s correcting the 2021 rally (Which was very strong). Here we’d be looking for a second scary drop leg to the 76 fib. Buyers come in at the 76 and a new trend leg up begins.
In this setup we’d have 2021 rally as wave 1 of Elliot and we’d be in wave 2. The implied uptrend if we enter wave 3 would be a rally probably lasting multiple years and there’d be no real consideration of a notable bear move until 7,000 - 8,000.
This type of move would present as a crash in real time (A sharp and solid decline), but it would just be a correction and the uptrend would be “Resetting”. What would follow would be similar to the rally out of 2008 low. Steady, consistent and the dips rapidly bought up.
Second to this would be a full correction of the 2008 low rally. We’ve covered various times when we’re forecasting where a lot is to buy a big dip we want to look for areas where people are going to be spiked out and also confluences with the 76 fibs. While this would be net bullish over decades, it would be bad in the near future.
This type of move in the DJI could see us retesting the highs of 2007. This would actually all fit really nice as a charting pattern. A spike out level, a 76 fib and a structural support level all coming in at the same points.
SPX has a similar setup.
This would be a 2008 kind of crash in terms of percentage. About 50% off the high. I’d think if this was a 2008 style crash the recovery would maybe take longer with a slow range at the low, but the crash itself would typically be fast (Granted sometimes with weeks/months being rangy increasing the overall time - the drops would be fast.
Thirdly, we have the generational crash scenario. Where we’re in the final phases of the popping of a bubble built up over at least 50 years. The biggest of the possible Elliot wave cycles. In this cycle we’d have 2000 - 2008 being wave 2. The decade rally wave 3. The 2018 - 2020 chop wave 4 and 2021 the final wave 5. We’d have wave A in 2022 and be set to see the trend fully reversing (As in, dip buying for new highs won’t work for a long time).
I think the mega crash is a real risk. Have put considerable time and effort into researching warning signs and documenting things we’d usually see before such an event. Here’s a DJI swing forecast from August of 2021. Before a high was made and showing the macro Elliot wave cycle.
This looks a lot like the basic Elliot model.
In this setup, the 2000 and 2008 crashes would be small relative to the crash to come. They’d be 1915 - 1920 style crashes. Ones that were the biggest thing the generation has seen at the time and would become mere footnotes in history, forever in the shadow of the Great Depression.
Many people are unaware that for a period of about a decade, this was called the “Great Depression”.
This was the generational bear. The benchmark in people’s mind for the worse possible outcome. Much as 2008 is what people expect in a “Big crash” now.
If we have a mega crash, any reference of history we can take would imply that this type of move would take decades to recover. Anyone in their mid 30s onwards would be unlikely to see a new for them being in their 60s. This was the case of the 1929 depression and it remains the case of the 1990 Japan bubble.
A crash would come. It would be sharp and dramatic. Unlike 2000, 20008, 2018, 2019 and 2020, this bear market event would not end in the capitulation. The capitulation would set up a series of mega rallies and brutal drops giving a range bound market for many years and ultimate downtrend of at least a decade.
The scope of a mega crash would ruin the retirement prospects for those catching the full brunt of it. At this point in time it is very easy and cheap to do things to insure yourself against this (Including just exiting the market if you do not competently know how to hedge against this).
Okay - broad strokes stuff done. Mainly a recap for those who follow our work. We’ve spoken about the 161 inflection point and the different Elliot corrections possible for a couple years now - but not much recently, so a recap is fitting and brings any new readers up to speed.
Let’s now get into more local action so we can make actionable plans based on what is happening right now.
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