Avi Gilburt: I am still bullish, unless...
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Maybe I am foolish. Maybe I don't know what I am talking about. But, I am still seeing the potential for the bulls to pull a rabbit out of a hat. Yet, their opportunity is narrowing.
Although the market tried many times, it was unable to break out through the 4401SPX important resistance we outlined over the last few weeks. In fact, the overnight futures action came right up to that line, and turned down. And, then we broke down below the 4280SPX upper support region I highlighted last weekend. So, how do the bulls still have a chance?
For those of you that have not read my analysis before, you are probably thinking that I will change my bullish perspective if rates rally a bit more, or if inflation numbers come in a bit higher, or if the war in the Middle East expands, or for many other reasons most view as being important to the market.
But, those that have read my analysis for some time know that none of that really matters to the market in the bigger picture. And, I have provided a multitude of real-world examples, as well as many recent studies supporting my perspective in many prior articles. So, I am not going to go into that again in this missive. Rather, I am going to try to take some time in this article to explain how I view the current structure from an Elliott Wave perspective.
Moreover, this article will go into a lot of basic instructions regarding Elliott Wave patterns. So, you may want to stop reading if you really do not want to learn something about Elliott Wave analysis.
But, I will also fervently note that those that have taken the time to learn what we want to teach have truly changed their lives when it comes to investing in the stock market. As one member just wrote to me two days ago:
"Avi, you have changed my family's life forever. You and your team are a blessing and I am grateful for you all."
One of the greatest and most powerful aspects of Elliott Wave analysis is that it provides something that no other methodology of which I know can provide - that is market context and objective parameters to that market context.
So, let's discuss the objective parameters of the two paths I am tracking in the market, one being bearish and the other being near-term bullish. For now, and until proven otherwise as outlined below, my primary perspective is still the bullish one.
Let's start with the bullish structure. A corrective pullback in Elliott Wave analysis takes shape as an a-b-c structure, wherein the a-wave is most often a 3-wave structure and the c-wave is most often a 5-wave structure.
Therefore, because the initial decline off the 4607SPX high we struck a few months ago counts best as a 3-wave structure, it suggests to me that this is an a-b-c corrective pullback that, when completed, sets us up for another rally towards the 4800SPX region.
Yet, if the market had begun its decline as a clear 5-wave structure, then I would not be primarily viewing the current structure as being corrective in nature. But, since the great majority of the time that we see a 3-wave structure it means a corrective move, the greater probability suggests that this is a corrective pullback in the market.
However, there is one type of structure which can start as a 3-wave structure, yet go on to complete a full 5-wave structure with 3-wave substructures. This is called a diagonal. But, they are much less common. Yet, this would be the basis behind the bearish scenario. Now, let's discuss how we can tell the difference between the two.
Let's first discuss the larger degree bearish scenario in a bit more depth. In looking at the larger picture, the bearish perspective would view the initial decline from the 2021 high to the 3500SPX region that was completed in October of 2022 as an a-wave, the rally to the 4607SPX region was a b-wave, and that we have now begun a c-wave pointing us down to the 2900-3300SPX region. Now, as I mentioned above, a c-wave takes shape as a 5-wave structure. And, within that 5-wave structure, waves 1, 3 and 5 traditionally take shape as 5-wave substructures.
But, as I also noted above, the wave 1 of the c-wave may be taking shape as a diagonal, which breaks down into 3-wave substructures. Therefore, we would count the initial 3-wave structure decline from 4607SPX as wave i of 1 in the c-wave, with us currently being in wave v of 1 in the c-wave.
Now, within diagonals, our Fibonacci Pinball methodology tells us that wave v often targets the 1.618-1.764 extensions of waves i and ii. In our case, that is the 4060-4100SPX region, with the 1.382 extension being the 4165SPX region.
When an initial decline takes shape as a 3-wave structure, as I mentioned above, the greater probabilities generally side with the decline being part of a corrective structure. That is why I am still retaining a primary bullish bias, as the initial decline off the 4607SPX high counts best as a 3-wave structure. And, as long as we do not see evidence of a diagonal taking shape (in our case, by a sustained break of the 4165SPX region), I will usually side with such a pattern being corrective in nature. This is why I have said that as long as we hold over the 4165SPX region, I can still maintain a bullish bias pointing us toward the 4800SPX.
However, should the market see a sustained break of the 4165SPX region, and we continue down to the 4060-4100SPX region, then I have no choice but to change my primary perspective and view this decline as wave 1 of the 5-wave c-wave pointing us down to the 2900-3300SPX region as we look towards 2024.
One of the nice things about my job is that I only have to count to 5, and I only need to know the letters a-b-c within the alphabet. But, in being able to count to 5, I understand that once we complete wave 1, then it is reasonable to expect wave 2. I also understand that 2nd waves are counter-trend structures. Therefore, as long as we hold the 4000-4100SPX region support if we do drop down to that region, then I think it is reasonable to expect a 2nd wave counter-trend rally back to the 4375-4475SPX region before wave 3 begins to take us down in earnest into 2024.
This should give you a bit more insight into the parameters I am going to be watching in the coming weeks. As long as we hold the 4165SPX support region (which could even extend down as deep as 4145SPX), and then begin a rally through 4340SPX, I can maintain my current primary view that we are setting up for a rally to 4800SPX.
Alternatively, if we see a sustained break-down below 4165SPX which then takes us to the 4000-4100SPX region, then I will be forced to take a more bearish stance as we look towards 2024.
I want to now discuss why we always maintain an alternative perspective for the market. Most people approach market analysis from the perspective of "tell me what the market is going to do right now." Well, I think anyone who has experience in the market knows that this is an impossibility. The market is a non-linear environment, therefore, we approach the market with a non-linear perspective.
Therefore, we provide our perspective by ranking probabilistic market movements based on the structure of the market price action. And, if we maintain a certain primary perspective as to how the market will move next, and the market breaks that pattern, it clearly tells us that we were wrong in our initial assessment. But, here is the most important part of the analysis at this point: We also provide you with an alternative perspective at the same time we provide you with our primary expectation, and let you know when to adopt that alternative perspective before it happens.
This is no different than if an army general were to draw up his primary battle plans, and, at the same time, also draw up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the general prepares for battle. So, why should we not do the same when we approach the market?
Moreover, we provide objective price points at which we recognize that we have to move to our contingency plan, and we then move into that contingency plan without delay. This allows us to view the market objectively and avoid the big losses that so many traders and investors often experience, which drags on your overall performance.
I know that my trying to give you a very basic lesson in Elliott Wave and Fibonacci Pinball may be a bit confusing to those that have not had any prior exposure to this type of analysis. So, you may have to read this article several times before it begins to sink in. Yet, this is the basic theme behind my thinking over the coming weeks. Of course, there are other ancillary factors to the standard EW and Fibonacci Pinball structures I am considering in determining my primary assessment, which I have outlined in detail to members. But, you now have a basic understanding as to how I am viewing the market over the coming weeks, and beyond.
Now, for those of you that question the efficacy of this type of analysis, allow me to explain how we have used this during the last 12 years we have been publishing our analysis for public consumption. In fact, we have caught almost all the major turns of all the markets we track during that time. As one of our long-term members (he has been with us for 9 years) recently noted:
"The number of different markets, i.e., TLT, Metals, Oil, IWM, SPX etc.., that you have absolutely nailed over the years is legend."
So, to name a few of the major turns we have caught through the years using our methodology, here is a small representative list, which are the ones our members have told us most stick out in their minds:
- July of 2011: Called for rally in DXY from 73 with target of 103.53 while the Fed was pumping QE into the market and everyone was expecting a dollar crash. Market rallied initially to a target of 103.82 before a multi-year pullback, as we expected.
- August of 2011: Called for a top in gold at $1,915 while gold was going through a parabolic rally. Gold topped within $6 of our target at $1,921. We also called for a downside target of the $1,000 region before it even topped.
- September 2015: Started suggesting buys on stocks like Barrick Gold (at $7) and Newmont Mining (at $16).
- December 2015: Called for a major bottom in gold the night we struck the bottom, despite the market turning extremely bearish at the time and expecting a break-down below $1,000.
- December 2015: Called for a market top in the 2100SPX region, to be followed by a pullback towards 1775-1800, and followed by a "global melt-up" to at least 2600SPX "no matter who gets elected" in 2016. Market bottomed at 1810, and began a strong rally to 2872.
- November 2018: Called for a bottom in TLT in the 112/113 region, with the expectation of a larger rally to follow. TLT bottomed at 111.90, and rallied to 179.70, despite the Fed still strongly raising rates at the time it bottomed.
- December 2019: Called for a 30% correction to begin by the first quarter of 2020. We began the Covid Crash in February of 2020 and our market call was made well before anyone even knew the name "Covid."
- March 2020: Called for a major market bottom at 2200SPX, with an expectation of a rally to at least 4000SPX. Market bottomed within 8 points of our target.
- April 2022: Suggested to cash in most of our NEM position (bought in 2015 at $16) in the $84/85 region. NEM topped at 86.37 and proceeded to drop almost 60% immediately thereafter.
- March 2023: Called for a major market bottom at the 3500SPX region (no matter what the CPI report expected at the time said), with an expectation of a rally to 4300+ from there.
So, as I noted at the start of this article, those willing to learn how we apply Elliott Wave analysis with our Fibonacci Pinball methodology have truly changed their lives. Based on our market calls, maybe you can understand why.
In the coming weeks, feel free to use the objective parameters I outlined above. This is what we will be following in real-time to make our determination about the next 500+ point move in the market.