Summary

  • There are too many fallacies that ordinary investors are willing to accept about the market.
  • The news cycle has kept most on the wrong side of the market during this recent rally.
  • The next 2-3 weeks will tell us if the market has indeed struck a long term bottom, or if it has one more lower low to be seen.
  • This idea was discussed in more depth with members of my private investing community, The Market Pinball Wizard. Get started today »

So, if you are like most market participants, there are many fallacies which you have likely accepted of late.

First, you are likely viewing this “bear market” as having begun 6 weeks ago. Yet, if you actually understood the broader market in a bit more depth and better context, you would actually be viewing this “bear market” as having begun in early 2018. This is actually supported by the great majority of the stocks underlying the market. So, while the SPX rallied much higher than its 2018 highs, most stocks as well as many other indices did not. So, much of the evidence suggests this “bear market” has lasted over 2 years at this point in time, and is likely closer to its conclusion than just beginning.

Second, one has to question the common acceptance of the definition of a “bear market.” The common belief is that any decline of 20% or more is a bear market. But, why do we accept such an arbitrary definition for the term “bear market?” In fact, I actually view this action as part of a larger degree “correction” in the rally off the 2009 lows. And, that is based upon a much more broad understanding of the market structure off the 2009 lows, rather than some arbitrary definition which likely caught most looking the wrong way when we were bottoming at the 2200 region.

Third, I know it sounds so impossible when you try to reason regarding this market action, but we may have begun the run to 4000+. When you consider the unemployment numbers we are seeing, along with all the fears of impending bankruptcies (and the US has not even opened the economy back up yet), can we even consider something so crazy?

On the other hand, consider how each time we get record jobless claims, the market has seen strong rallies. Do you really think following the news cycle is an appropriate path to take with regard to market action?

Fourth, for those that argue that the Fed has been pushing us higher and you cannot fight the Fed, I would strongly urge you to reconsider your perspective. Remember how I was looking to the long side in TLT back in November 2018 while the Fed was still raising rates? And, just weeks ago, each Fed action was met with continued selling.

It is amazing how soon we forget our market history. I think the more accurate perspective would be to not fight the Fed when the market is in an uptrend. But, does that really provide you with any real guidance?

In the meantime, the members of The Market Pinball Wizard were looking for the market to bottom out in the 2187SPX region, whereas most others at the time were looking for continuation moves well below 2000. We now know that the actual low struck was 2191 and was within 4 points of our support target. We then began to look for a rally to the 2600-2725SPX region from that low. While my initial expectation was that the rally to that region would be a corrective rally, thus far, the market has been doing everything right to prove the bottom may be in place already.

Therefore, to put it as simply as I possible can, and leaving all the detail for the members of The Market Pinball Wizard, these are the parameters I am following.

Ideally, I would like to see the market continue towards the 2890SPX region in the coming week. Should that occur, then the 2700SPX region will be of utmost importance. If the market can pullback correctively and hold that support, I will be looking for the market to continue to rally up towards the 3000 region in the coming weeks.

However, if we see a sustained break of the 2700SPX region after we strike the 2890SPX region, then it will suggest that the market may still be targeting that lower low in the 2060SPX region before the next major bull market segment off the 2009 lows begins.

Lastly, I want to remind those that read my analysis that it is based upon probabilities, as there is no such thing as certainty within non-linear environments such as the financial markets. The majority of the time, the market provides us with a relatively clear path and provides us strong goal posts as it moves through its structures. But, none of my analysis is meant to be seen as a certainty. And those that have followed me for many years know how well we have done in the markets we track.

If you would like to understand my perspective on markets in a bit more depth, feel free to read the 6-part series on Elliott Wave analysis that penned on Seeking Alpha some time ago:

Author: Avi Gilburt

Source: Seeking Alpha: Sentiment Speaks: This ‘6-Week Bear Market’ May Be Over

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