Sentiment Speaks: The Most Expected Crash In Stock Market History
On Friday alone, I received 5 emails by the end of the day warning me to prepare for the imminent market crash. It seems as though the upcoming crash is a foregone conclusion.
Personally, it makes me uneasy viewing the market from the common lens of an impending crash being a foregone conclusion, simply because that is just not how the market works the great majority of the time. Yet, that is simply anecdotal, and I do not put money at risk based upon anecdotes.
Now, this brings me to another point. After a bull market move completes, the market then turns down in a 3-wave structure, pursuant to Elliott Wave analysis. Those 3-wave structures are labeled a-b-c.
Moreover, if we are dealing with a larger degree correction, the c-wave is often a "crash" wave. And, that is not because the word crash begins with a "c." It is simply the nature of the market. The 2008 market crash was a c-wave. The Flash Crash in 2010 was a c-wave. The Covid Crash was a c-wave. And, if we were to go further back in history, we would find the same fact with each and every crash we have experienced throughout history.
So, when dealing with a c-wave, what we know is that they take shape as 5-wave structures, with the 3rd wave being the true "crash" segment of the wave structure. Therefore, before we begin that true "crash," the market will likely provide us with a 1-2 structure. Moreover, since the market is fractal in nature, that initial wave 1 down will also take shape as a 5-wave structure.
Again, back in 2007, I had cashed out of my equity positions expecting a larger degree market drop. And, that was a c-wave crash in 2008. In 2010, I came into the day of the Flash Crash positioned with shorts. That crash was a c-wave. While I did not expect it to drop as much as it did, it was still a c-wave set-up. Same with the Covid Crash. For those that may remember my public article in February 2020, I was short the EEM in February 2020 because it provided us with the best 1-2 downside set-up, with the least risk for taking that trade.
So, as the market tries to fill in the remaining segments of what I have been tracking off the October low as a larger degree b-wave corrective rally, we have one main factor to consider in the coming months: Is this top we strike in the near term going to be followed by a 5-wave decline or a corrective decline?
If we see an initial 5-wave decline once this rally completes, then I will view that as wave 1 of a c-wave "crash" wave. We will then likely see a corrective 2nd wave bounce before the "crash" segment of the decline begins in earnest. This is the typical path for these c-waves.
However, if the decline from that high takes shape as a CLEAR corrective 3-wave structure, then we are going to have to put those bear suits back in the closet and consider that either this b-wave is going to take us much longer, with another [c] wave rally to be seen before the larger degree b-wave high is completed, or we will also have to even consider the potential that we can still achieve the 5000+ region before we begin the bear market in earnest.
In other words, the decline from whatever high we are able to strike in the near term will tell us if we are going to get the most expected crash of all-time or not.
So, I am going to suggest to each and every one of you to maintain objectivity when it comes to the decline we expect once this rally tops out. Please do not automatically assume that a crash is a foregone conclusion. Please allow the market to prove it to us with a 5-wave decline for wave 1 of the c-wave crash, should it develop. Otherwise, the market is simply setting us up for another rally to begin later this year pointing us well north of 4300SPX.
In the meantime, those that are risk-averse may want to consider raising more cash. If the market is indeed going to set up a c-wave "crash-like" event later this year, you will not get another opportunity to raise cash up here. But, if the next drop is clearly corrective in nature, you will likely have an opportunity to buy back in at much lower levels than where we are today.
One of the main reasons I believe we have almost 8,000 members and almost 1,000 money manager clients in the 11 years we have been open is because we listen very closely to the market's messages in order to best benefit our clients.
In fact, this is what one of my clients posted in our trading room just a few days ago:
"Sometimes I wonder if EWT is for real or is some kind of a dream . . . thank you again for changing my life."
Therefore, we do not assume anything other than what the market tells us, as the last thing we do is project our view on the market. Rather, we try to remain as objective as humanly possible, and our track record supports the rigorous nature of our analysis. So, if the market provides to us a clear structure telling us a crash is about to set up, well, that is how we will approach the market later this year. However, if the market tells us that it may set up another rally over 4400SPX later this year, then that is what we will have to follow, no matter what our personal "feelings" are about the matter.
Objectivity keeps you on the correct side of the trend. It's time to tune out the noise and focus on what is most important.
As an aside, I wrote an article on earnings that many of you may have missed and may be interested in reading. Personally, I think it is one of my better articles. You can see it here: "Sentiment Speaks: How To Use Earnings To Dramatically Increase Your Stock Market Returns"