Sentiment Speaks: Is It 1929 All Over Again?

As George Santayana wisely said, “those who do not remember the past are condemned to repeat it.”

One of the signs we see before a major market top in the stock market is struck is the expectation by the masses that one cannot happen. And, anyone that knows their history knows this to be true.

For those that know their stock market history, you would know that those “in the know” were absolutely certain about the impossibility of a market crash right before the market crashed in 1929, which lead us into the Great Depression. Let me show you a few examples:

"We will not have any more crashes in our time."

This was said John Maynard Keynes in 1927, two years before the stock market crash which lead to the Great Depression.

"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as they have predicted. I expect to see the stock market a good deal higher within a few months."

This was said on October 17, 1929, a few weeks before the Great Crash, by Dr. Irving Fisher, Professor of Economics at Yale University. Dr. Fisher was one of the leading US economists of his time.

"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future."

- E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928

"There will be no interruption of our permanent prosperity."

- Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928

And, these are just a few of the popular quotes of their day. And, by the way, has anyone heard of the Pierce Arrow Motor Car Company? You have not? Well, that is because they went bankrupt during the Great Depression. But, I digress.

More recently, Janet Yellen likely placed herself in the same category as those noted above. As I said in an article I wrote back in 2017:

“In 10 years from now, we will likely be adding Janet Yellen to the list of those who lacked the foresight to see what history should have taught them. Yesterday, Fed Chair Janet Yellen said that the banking system is "very much stronger" due to Fed supervision and higher capital levels. But, she then followed that up with what I believe will be her history-making statement. Yellen also predicted that because of the measures the Fed has taken, another financial crisis is unlikely "in our lifetime."

I am sorry to tell you this Ms. Yellen, but history’s lesson will be learned the hard way by those who have failed to already learn from the past, as Mr. Santayana has warned. This time is not different.”

As many former bears are now being converted to bulls, and the bulls are now turning into uber-bulls, the market action does seem to make everyone believe that the danger we experienced in 2022 has passed. In fact, I saw this comment in an article I recently read, which is reminiscent of some of the quotes I cited above:

“I think S&P 500 is pretty much done with 3000s unless something really really bad happens. We may never see 3000s again.”

This is not the only one of its kind that I have seen posted by analysts and commenters alike. This now seems to be the common view of the SPX, as many believe we have entered a new bull market of sorts. However, I do not share in their sentiment.

I am always asked why I think this rally will end a major bull market move, so I thought I would take the opportunity to explain.

Ralph Nelson Elliott outlined many decades ago that markets move in 5 waves in a primary trend, and in 3 waves in a corrective trend. When a 5-wave structure is nearing completion, it is reasonable to expect that the trend is coming to an end. Such is the current posture of the S&P500. We are approaching the completion of a 5-wave structure off the 2020 low, which is completing a larger degree 5-wave structure off the 2009 low, which is also completing a larger degree 3^rd wave structure off the 1932 low.

To show you the efficacy of Elliott’s work, I want to take a moment to tell you about a market prognostication made by Elliott back in the early 1940’s. Let’s put ourselves back in that time period so we can understand the extent of Elliott’s prognostication. World War II was raging around him, as the United States was just entering the war at the end of 1941. And, the next 4 years saw some of the most horrendous fighting in world history. It truly was a period of ultimate negativity around the world. Yet, Elliott made the following prognostication at the time:

“[1941] should mark the final correction of the 13 year pattern of defeatism. This termination will also mark the beginning of a new Supercylce wave (V), comparable in many respects with the long [advance] from 1857 to 1929. Supercycle (V) is not expected to culminate until about 2012.”

For those that do not understand this, Elliott was forecasting a 70+ year bull market while WWII was raging around him. This has to be the best stock market prognostication in history, bar none. While we clearly have extended a decade beyond Elliott’s expectation back in 1941, I do not think it tarnishes this awesome market prognostication in the slightest. However, it does mean that a major bull market is likely coming to an end as we are completing this structure.

As we look towards 2024, I think there is a high probability that we will be completing this larger degree structure and starting a long-term bear market. In the smaller degree, I still think we can push higher in the first half of 2024, but I do have my parameters.

As far as how high the market can rally, well, that will depend on the nature of the next pullbacks we see in early 2024. Currently, support is 4694SPX. As long as we hold that support, we can see a more immediate move towards the 4900SPX region. However, should the market break below 4694SPX before breaking out over 4815, then we will be dealing with the 4365-4530SPX support below. As long as that support holds, then I am still going to expect one more rally pointing us north of 5000SPX before this long-term bull market completes.

But, I want to warn you that a break down below 4365SPX is the first indication that a long-term bull market has likely ended, and we will be heading back down to the 3500-3800SPX region in the first leg of a long-term bear market I am expecting.

If I had written this article when the market was down in the 3500SPX region back in 2022, many of those reading my analysis would likely have considered this article to be an accurate depiction of the market. And, that is the way markets work. When sentiment is negative, most people believe that the current negative trend will continue unabated, and they are more accepting of negative perspectives.

However, at that time, I was calling for a rally from 3500 to 4300-4505SPX, and many told me this was “impossible.” Moreover, I said at the time we will have to evaluate the potential for the market to continue to rally to 4800+ when we get to our target region. As we are now at the 4800SPX region, I do think we can still exceed the January 2022 highs. But, that does not change my perspective in viewing us as likely striking a major top in 2024.

And now that the market is in the midst of a positive sentiment trend, many will view my expectation of an approaching major top as quite unlikely. But, that is fine, as that is what happens during positive market trends. Most believe that it will continue linearly and unabated, as they did back in October of 2022 during the negative sentiment trend.

For those that have followed my work through the last 12+ years that I have been publishing my analysis, you would know that I am neither a perma-bull nor a perma-bear in any of the markets I track. My goal is to simply read the market in an objective fashion and remain on the correct side of the trend the great majority of the time. As one of my members have coined it, I am simply “perma-profit.”

So, I am going on high-alert for a major market top to be struck as we move into 2024. And, while I see potential for the market to push higher in early 2024, I also have my parameters set as to when I will see us as having likely topped and begun a long-term bear market.

Now, I know many of you take the perspective that even if we move into a bear market, “the market always comes back.” And, that is certainly true since society is generally on a path of progression throughout history. But, the better question to ask yourself is if you are willing to wait out a potential 13-21 year bear market before “the market comes back?” As I turn 54 in 2024, I know my answer is “no,” as I have personally become much more risk averse. We each have to make our own decisions in life.

Of course, should the market present me with a structure that would place my current view in question, I will adjust my perspective, as I always try to remain objective. But, this is a top that has long been in the making. And, unless I see evidence to the contrary in 2024-2025, this is how I am going to be viewing the stock market as we look out towards the last half of this decade, and well into the 2030’s. Interestingly, that is 100 years from the Great Depression. A coincidence? Maybe.

Lastly, I have been providing a lot of public analysis regarding my view of how dangerous bank balance sheets are presenting. And, while the 2008 financial crisis was driven by one main factor, the next banking crisis actually has several factors that will potentially make it much worse than 2008.

So, while the market is now presenting us with a period of calm and relative safety, it would behoove many of you to seriously consider which banks are holding your hard-earned money before what I am seeing of the future becomes publicly evident as a current reality, and the proverbial doo-doo begins to hit the fan. By then, it may be too late to act.

We have outlined our view of the issues we see in the banking industry here for those of you who are interested. And, I strongly urge all of you to be "interested," as you are the only ones who will be able to protect your hard-earned money.

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"By failing to prepare, you are preparing to fail." - Ben Franklin