Vitas,
Examining the largest degree cycles possible of the U.S. stock market is very interesting. From the 1789 origins of the U.S. market, it appears that an extremely large cycle wave 1 up completed in the mid 1830's, with the Dow equivalent up to 24. The subsequent correction ended in the early 1860's, bringing the Dow equivalent to 8. That correction was very much like the 1929-1942 period, as 75% of the market's value was given back during the height of the correction in the 1840's (maybe much more in inflation adjusted terms).
From 1860 to 1929, I believe you'd have to call that wave 3 of the largest degree possible, as the Dow went from 8 to nearly 400, which was only a 5.8% annual compounded return during that time period... (and we're unhappy with a mere 15%... or God forbid...10%?). The wave 4 mega cycle correction lasted from '29 to '42, lopping off nearly 90% of the dow's value at one point, taking the Dow all the way back to 40 in '32, but ending the correction with the Dow in the low 90's in '42. From 1942, we've been in this tremendous 5th megawave up.
The answer to the puzzle of when this 5th megawave ends is very difficult. If my theory is correct, and we saw the 1st supercycle off the '42 lows wrap up in '46, with the corrective 2nd supercycle ending in '49, and the 3rd supercycle ending in early '66, and the 4th supercyle ending in '82, that would put us in the 5th supercycle wave now.
I'm confident that we're in the 5th cycle wave of this supercycle that I believe began in August '82, and that we're now in the 3rd primary wave of this 5th cycle wave. When this supercycle wraps up, I believe we both agree that the long term buy and holders will finally get theirs if they refuse to take profits. If I'm right, and it is the end of the grand supercycle that began in '42, or God forbid, the end of the mega cycle that originates at the very beginning of the U.S. markets, we would probably see the end of our financial system and economy as we know it.
As for the historical channel break that occurred in 1986, I believe that should happen in a strong 5th wave rally, which it appears we are in from the '42 lows. These type of channel breaks happen all the time on a smaller scale, but don't signify the START of a wave, but do imply that the current rally is about to get even stronger. Price objectives can be garnered from these breaks as well, but I'm sure we're already well beyond the one generated from the '86 break.
My bet is the final top comes in later this year, and ends with a bang, with the SPX cash seeing 1350, and the Dow seeing 10700. I believe you will not only get your triple declining Mclellan summation pattern, but you will also see nonconfirmation of these new highs in the advance-decline line. I don't think any new highs seen from here on through the rest of the year will be accompanied by new highs in the summation and A/D line, thus setting us up for a very important top.
And the large, trend-ending pattern should be a humongous, 5th wave ending wedge pattern, which, when broken to the down side, will produce a dramatic 25 to 35% nearly vertical drop in the indexes by early '99. My most important task between now and then will be to identify this ending wedge, and be constantly aware of the break point that will put that decline into motion. Of course, I'll be trying to make a few mil on the move up from here, but that's besides the point!
Regards,
David
P.S. Initial declines in late '98 and 99 could and will certainly be followed by strong wave 2 or wave B rallies, some of which could even take the market to new highs during the next 5 to 10 years. Your cycle count pointing to 2005 as a highmark year could certainly be valid. I think us traders will still be able to make a good living... don't you agree? |
