The Next Major Stock Market Top Could Occur By November 2018
By: Chris Guthrie
Published October 11, 2018
09:00 PM GMT
We forecasted a major drop for corrective wave 4, but never thought it would come in 1-2 days time. All of our points of interest were achieved and then some. Hopefully we found the bottom today as the pattern has completed itself. The full article detailing the last drop before it happened can be found here. We are finally reaching the end of the long bull market. The next major stock market top will occur in November 2018 and could have something to do with international issues, trade, the U.S. elections or something else. I have laid out the most likely moves and timeframe for this final market top. This article is similar to my others. The sections include a breakdown of wave 4 in order to determine if has finally ended, the expected move for wave 5, an application of real world events with the potential to lead to the major stock market top and subsequent drop, and my counter-analysis section at the end of the article.
Elliott Wave Theory Technical Analysis On Intermediate Wave 4
Actual Intermediate Wave 4 Statistics
If completed, this wave alone:
lasted 14 days;
moved 230.40 points; and
retraced intermediate wave 3 by 92.56%.
Average Intermediate Wave 4 Statistics
This wave typically:
lasts an average of 11 trading days;
has a median length of 5 trading days;
has a 47.71% average retracement of intermediate wave 3's movement; and
has a 47.14% median retracement of intermediate wave 3's movement.
Based on derivative analysis, intermediate wave 4 on average:
is 0.12 times the length of intermediate wave 1;
is 0.47 times the length of intermediate wave 2;
is 6-29 times shorter than the length of intermediate wave 3;
moves 0.56 times intermediate wave 1's movement;
moves 1.12 times intermediate wave 2's movement;
moves 2.64 times less than intermediate wave 3's movement; and
has a retracement of intermediate wave 3's movement that is:
0.81 times the retracement percentage of intermediate wave 2 from intermediate wave 1; and
4.55 times less than intermediate wave 3's extension of intermediate wave 1's movement.
Has Intermediate Wave 4 Met The Averages?
I will start with the analysis for wave 1. Wave 1 lasted 51 days. Wave 4 currently is 0.27 times the length of wave 1 which is above the average. Wave 1 moved 237.67 points. Wave 4 has currently moved 0.97 times wave 1. This is above the average move seen between waves 1 and 4.
Next is intermediate wave 2's performance in relation to wave 4. Wave 2 lasted 11 days. Wave 4 is currently 1.27 times longer than wave 2 which is well above the average length. Wave 2 moved 99.48 points. Wave 4 has currently moved 2.31 times wave 2. This is well above the average. Wave 2 retraced the movement of wave 1 by 41.86%. Wave 4 has currently retraced wave 3 by 92.56% which is 2.21 times larger than wave 2's retracement. This is well above the average correlation typically seen between waves 2 and 4.
Finally is intermediate wave 3's correlated movement to wave 4. Wave 3 lasted 59 days. Wave 3 is currently 4.21 times longer than wave 4 which is well beyond the average length. Wave 3 moved 248.92 points. Wave 3 has currently moved 1.08 times wave 4. This is well above the average. Wave 3 extended beyond the movement of wave 1 by 162.88%. Wave 4 has currently retraced wave 3 by 92.56% which is 1.76 times shorter than wave 3's extension. This is well above the average correlation typically seen between waves 3 and 4.
Based on the information above, there is a strong chance wave 4 has indeed concluded. This wave has been very drastic and it has moved beyond the average and median metrics observed on 36 prior occasions. The next portion of analysis for intermediate wave 5 should be accurate. Observable deviations will be covered in the counter-analysis section at the bottom.
How Intermediate Wave 5 Will Most Likely Move
Intermediate wave 5 is an impulsive wave that currently began at 2710.51 on October 11. The following analysis is based on derivative analysis. On average, wave 5’s movement has been:
1.04 times the movement of wave 1;
2.02 times the movement of wave 2;
1.89 times the movement of wave 4; while
Wave 3 is around 1.41 times greater than the movement of wave 5.
Intermediate wave 1 moved 237.67 points, wave 2 moved 99.48 points, wave 3 moved 248.92 points and wave 4 moved 230.40 points. Our levels of interest are 2957.69, 2911.46, 2887.05, and 3145.97.
Elliott Wave Theory Principle: the next set of movement target prices are derived from the correlation between retracement percentages for waves 2 and 4 as well as the extension percentage of wave 3. On average, wave 5’s extension of wave 3 has been:
2.46 times the retracement of wave 2;
3.00 times the retracement of wave 4; while
Wave 3's extension of wave 1 is around 1.47 times greater than wave 5's extension of wave 3.
Intermediate wave 2 retraced 41.86%, wave 3 extended 162.88%, and wave 4 retraced 92.56%. Our levels of interest are 2948.32, 2967.80, and 3383.19.
We also keep in mind common Fibonacci percentages as potential retracement levels when determining future movement. It is important to remember one of the many Elliott Wave Theory Principles we operate under is that wave 5 does not have to extend beyond wave 3's end point which was 2940.91. I strongly believe wave 5 will rise above this level based on the derivative and statistical analysis found in this article. The Fibonacci levels of interest are: 2999.66 (which is a 123.6% extension of wave 3's movement), 3036.00 (138.2%), 3065.37 (150%), 3094.74 (161.8%), and 3131.08 (176.4%).
A final source of figures are also calculated based on the historical movement of the index during the entire course of our current supercycle. The index is wrapping up supercycle 3 with this pending top. There have been 36 previous intermediate wave 5s. The minimum extension of wave 3's movement has been 98.16%, the median extension is 137.55%, and the average is 149.92%. These additional statistics provide the final three levels of interest which are 2936.33, 3034.38, and 3065.17. We now have 15 potential points for the index to find its next top.
We use the same methodologies to project the days, minutes, and hours it will take for the wave to complete itself. Our ratios are based on 1 day periods. On average wave 5 lasts:
0.58 times the length of wave 1;
2.77 times the length of wave 2;
4-8 times the length of wave 4; while
Wave 3 is around 2.58 times longer than the length of wave 5.
Intermediate wave 1 lasted 51 trading days, wave 2 lasted 11 trading days, wave 3 was 59 trading days, and wave 4 lasted 14 trading days in length. We estimate the top to occur between November 6, 2018 and November 22, 2018.
We have taken the initial 15 levels of interest and removed the three highest as outliers. The key levels of interest reside between 2887.05-2911.46, 2936.33-2999.66, and 3034.38-3094.74. The chart below outlines four different colored polygons where the next top could occur. The blue polygon on the bottom is likely, the green is the most probable and a solid conservative target. The yellow zone is also probable but may not occur. The red level on the top contains the outliers, it is highly unlikely but should not be completely discounted.
All forecasted movement discussed in this article can be tracked in the interactive chart below. Simply click the play button on the right side of the screen and track the index over the next two months. My articles will follow as we monitor the pending stock market crash. After this potential 200+ point rise, we could see declines over the next 9-18 months. Check out my other articles and stay tuned for more. I recommend joining our free mailing list in order to get our latest articles immediately in your inbox when they are published.
Real World Application Analysis
Finding the cause for the top and subsequent drop can be beneficial to best identify the trigger and have preparations made when it occurs. I originally identified the most recent decline for the beginning of October back on August 1, 2018. While the article was right with the timeframe, the real world reason was wrong. At that time, the U.S. government did not have a budget and a government shutdown was mentioned by the President.
I have constantly forecasted the end of the market to occur in November 2018, which coincides with the U.S. elections. I have focused this analysis on the political "blue wave" theory. I now believe the elections could still be the cause but the "blue wave" might not be the cause. Many articles have mentioned a blue wave of sorts (split-control of Congress) would cause gridlock in Washington D.C. which would be good for the markets. Gridlock would ensure nothing "bad" gets passed which would create greater volatility in the markets. If the Republicans maintain control of Congress and make gains, legislation will pass. Not all legislation is positive, especially for the markets. Regulations could follow if the conservatives feel the social media companies, the same companies leading the market gains throughout the past 5-10 years, are restricting the voices of their base.
But how could this happen? Private companies cannot face regulations from Congress. While this is mostly true, utilities can have regulations placed on them. InvestorWords.com defines a utility as, 'an organization which provides a basic service to the public, such as water, energy, transportation, or telecommunications. Firms providing these services are sometimes given monopoly status by the government, when doing so is perceived to be in the best interest of the consumers.' This could soon apply to certain companies depending on one's interpretation of this or a similar definition and an examination of the social media companies of Facebook, Twitter, and Google. The truth or perception of algorithmic or other bias could lead to regulation in this space.
The good news for now is that no one seems to be running on this platform. The political parties have briefly discussed the topic, but they have been more worried about other issues affecting their districts and the country. IF more action occurs on this front and IF the 'blue wave' diminishes, expect this to be a potential catalyst for the next market downturn.
There is also the chance the Fed will raise rates quicker than what is already priced in to the market. Trade deals are also yet to be finalized between the U.S., Mexico, and Canada. China and the U.S. are set to sit down again in November. Declines could occur if these deals fail to be implemented. There is also the focus on bond yields. They have been going up and may continue to do so. A higher guaranteed rate of return is better then speculation in an overpriced and volatile market. Last, there is always a chance of another black swan event such as more war in the Middle East, Africa, the seas, or some other resource rich location.
While the above scenario is most likely to occur based on statisical averages and derivative analysis, there is always a 5% chance the top of the market already occurred in September when the index reached 2940.91. This could be evident if the market drops below 2691.99 before the market breaks above 2900. A move of this magnitude could also place the index in wave 2 instead of wave 4 thus pushing the entire timeframe and additional market moves 3-4 months into the future. An update would be published if the index breaks below 2691.99 within the next week. Otherwise future articles will be published tracking the correction waves and the bear market. The floor for the bear market will be no lower than 666 (this was the start of supercycle wave 3). Corrective wave 4 will not retrace 100% of wave 3's movement. A 23-50% drop in the market is most likely, but further analysis will be produced in the future.
Disclaimer: I just bought call options on the SPY ETF, and puts on the VIX at the end of today's trading session. I do not intend to enter additional positions at the time of writing. This article is for reference only and should not be solely relied on to predict future movement. Historical movements and technical indicators should never be the sole basis for entering positions involving risk. You should not take a risk without fully understanding the system, market, and having established trading discipline. Make sure appropriate research is conducted prior to taking any risk in a marketplace. The author and Limitless Life Skills LLC do not have an interest, outside of the holdings disclosed, or relationship with the companies mentioned in this article.