From the desk of NEoWave founder and trading advisor, Glenn Neely
SEPTEMBER 12, 2021 - ANATOMY OF A BEAR MARKET
On Friday, September 10, the S&P began to decline in a way that could indicate the Bull market (off the March 2020 low) is over. In this public update, I'll review all timeframes and the behavior required to confirm the Bull market has ended.
CHART 1 - S&P 6 MONTH
Presents my long-term scenario, going back to the high in the year 2000 (at the peak of the dot.com bubble). The pattern unfolding the last 21 years is a NEoWave neutral Triangle, with wave-(E) beginning at the high in 2018. Notice wave-(E) is drifting upward - this is a long-term sign of strength and reinforces my 75-year stock market forecast (made in 1988) that the Dow will exceed 100,000 by or before the year 2065.
CHART 2 - S&P MONTHLY
This chart "zooms in" on the structure of wave-(E), showing much more detail. The X-wave rally (inside wave-(E) is on the verge of completing a NEoWave Symmetrical (a pattern where 6 of the legs take similar amounts of time). Once complete, a new, multi-year bear phase should begin. The predicted detail of that bear market is mapped out with the blue-dashed projection line.
CHART 3 - S&P WEEKLY
Focusing on the final legs of larger wave-X, you can see wave-i of wave-X is forming a NEoWave Diametric (a 7-legged formation where 5 waves are very similar in time). Notice, it appears wave-g of that Diametric is over with the cash S&P breaking the lower orange channel on Friday.
CHART 4 - S&P DAILY
As we drop to the daily time frame, we can see the internal structure of wave-g, which appears to be a contracting Triangle with NEoWave reverse alternation between waves-b and d. This last chart allows me to discuss the NEoWave Confirmation process and where things stand in confirming a new Bear market is starting.
ANATOMY OF A BEAR MARKET
(The NEoWave Confirmation Process)
While good Wave counting and forecasting begins from the largest time frame and works its way downward, the NEoWave confirmation process works in the opposite diredtion - it begins on the smallest time frame (Stage 1 confirmation) and works its way up through Stages 2 and 3. NEoWave confirmation tells us a new wave, moving in the direction of a new, larger trend, will move further and faster than the last, counter-trend wave of the prior trend.
Chart 4 shows wave-g as a contracting Triangle with NEoWave reverse alternation. Notice, wave-a is the longest and most violent. Wave-c is 61.8% of wave-a (as requried) and wave-e is around 38.2% of wave-c. Waves-b and d "overlap" and alternate, as required.
*** Stage 1 - On Friday, the crucial "first step" in the NEoWave confirmation process began. On Chart 4, wave-d is the last counter-trend wave of the old uptrend and also the largest. Notice the drop on Friday is larger and much faster than the price action in prior wave-d (see green rectangles). Friday's drop confirms wave-e of wave-g is complete.
Chart 3 shows wave-i as a NEoWave Diametric (wave-g on chart 4 is the last leg on this chart). Notice this pattern has the typical "bowtie" shape with expansion early in the pattern followed by contraction toward the end.
*** Stage 2 - Wave-f is the last counter-trend leg of the Diametric; so, wave-f's behavior is being used to define "confirmation" of the larger Diametric. If wave-g is over, the cash S&P must drop further and faster than wave-f (see red rectangles).
Chart 2 "zooms out" to show how wave-i fits within a much larger NEoWave Symmetrical that began at the March 2020 low.
*** Stage 3 - because stage 1 and stage 2 confirmation will already have exceeded the length of wave-h (the last leg of large wave-X), I'm instead using the largest counter-trend segment of the Symmetrical to confirm its conclusion. If large wave-X is now ending, we should see the cash S&P drop further and faster than wave-d of the Symmetrical. This means the cash S&P must break 4100 in the next 2-4 weeks! If that occurs, we can be nearly certain this 1.5 year Bull market has ended. In real-time, once the highest level of confirmation has been achieved, we can move on to the "forecasting" phase.
Chart 2 also provides my prediction of what it is likely to happen once wave-X is confirmed over. In a complex correction, if the first phase is an expanding Triangle, the most likely post-x-wave pattern will be a contracting Triangle. If the S&P gives us stage 1, stage 2 and stage 3 confirmation (as described above), the odds are high the S&P will undergo a "market meltdown" over the next 1-2 months that quickly pushes the cash market below the 3000 level.
Chart 1 gets us back to where we started. If all 3 stages of confirmation are fulfilled in the next few weeks, large waves-(E) and 4 will end around the middle of this decade. Once over, that connects back to my 1988 Cycles magazine article where I predicted the greatest Bull market of all time was starting that would push the Dow Jone Industrial Average (if it still exists) above 100,000 by the year 2065!