Elliot Wave Meets Strauss-Howe Theory
This chart is in "The Last Call" - a book by Elliot Wave International leader (and author of "The Wave Principle" book).
Prechter uses a composite of PPI, British stock prices and US stock prices to create this chart.
The count Prechter applies suggests we are nearing the end of the Grand Supercycle - a complete 5-wave pattern that extends back to 1715.
Counter-trend retracements - corrections - always follow the end 5-wave patterns as we can see from this chart.
So, therefore, the chart suggests are are due for a severe bear market as a continuation of the correction that has taken place since 2022.
I have added to this, Neil Howe's view of generational "Saeculums" which represent turning points in history.
There is a strong degree of correlation between the beginning and the end of the Saeculums and major turning points in the markets.
Lets take this apart:
Howe believes of course, that we are entering the "Fourth Turning".
This appears to correlate with Prechter's view that the market is close to topping out here along a Grand Supercyclical Wave 3 and a Supercyclical Wave 5.
A further point of interest is the wedge pattern that appears to exist from 1935 to present.
In short, it seems that we are in the final throes of a cyclical blow off, a supercyclical blow off and a grand-supercycle Wave 4 correction.
Okay, very interesting Shred! But how do we trade this?
Wave 4 corrections on this scale have traditionally been horrible grinding patterns spread over multiple decades.
Think about the sidewards grind of the dotcom bubble bursting and the housing bubble bursting on the SPX. The SPX effectively went sidewards over an extended range for 2 decades.
This time, it will be on a much bigger scale.
If you look at Grand Supercyclical Wave 2, it was a messy ABC zig-zag with an extended drift during wave B.
So, we should look for a more grinding sidewards pattern (to create alternation) perhaps along the line of a large 12345 triangle move.
An example of this is the triangle we saw when the markets crashed during the great depression.
So, I will be looking for some wild swings and big declines spread over a good number of years combined with some big pops and extended bear market rallies.
As far as the depth of the correction, Elliot Wave theory suggests a Wave 4 should be between 14% and 38% of Wave 3.
So, this would equate to a full 14 - 38% of the gains seen since 1775.
This would put markets roughly swinging between the 2022 highs and the 1975 lows over a significant time period (up to 100 years).
So, not the total collapse of civilisation moment that some bears are (wrongly) thinking about.
Not just a straight line down either as some bears are (wrongly) thinking about.
Instead, the setup suggests a nasty grinding correction - just on a very big scale.
So, by way of analogy, you should look to the Triangle on this chart that occurred around the point of the Great depression.
Just on a much larger scale.
To summarise... this means that we are not looking at a "Total economic collapse" and we are not looking at a "buy-to-hold market"...
...instead, the market will favour nimble traders who are willing to switch from long-to-short-and-back over extended time periods and potential hold shorts alongside longs and move from sector-to-sector.
Please. Do your own research and always play safe.
Prechter uses a composite of PPI, British stock prices and US stock prices to create this chart.
The count Prechter applies suggests we are nearing the end of the Grand Supercycle - a complete 5-wave pattern that extends back to 1715.
Counter-trend retracements - corrections - always follow the end 5-wave patterns as we can see from this chart.
So, therefore, the chart suggests are are due for a severe bear market as a continuation of the correction that has taken place since 2022.
I have added to this, Neil Howe's view of generational "Saeculums" which represent turning points in history.
There is a strong degree of correlation between the beginning and the end of the Saeculums and major turning points in the markets.
Lets take this apart:
- The first big grand supercyclical correction as envisioned by Prechter ended in around 1780 - after the American war of independence ended and the international order started to find it's feet - near the end of Howe's first generational turning point.
- The "Civil War" Saeculum (which ended with the surrender of Robert Lee in 1865) coincided with a major supercyclical Wave 2 correction.
- The "Great Power" Saeculum ended with the end of the WW2 era - roughly the point at which the baby boomers were born - and this era featured the 20's boom, the great depression, WW2 and we can see
Prechter has quantified this period as a triangle correction along supercyclical Waves 3 and 4.
- The "Millennial" Saeculum ended practically straight after WW2 and this was fundamentally fuelled by the Breton-Woods arrangement between nations and the rise of similar international agreements that helped fuel peace and, in turn, promoted economic growth. Prechter quantified this entire period as a supercyclical Wave 5 and, more significantly, the end of grand supercycle wave 3.
Howe believes of course, that we are entering the "Fourth Turning".
This appears to correlate with Prechter's view that the market is close to topping out here along a Grand Supercyclical Wave 3 and a Supercyclical Wave 5.
A further point of interest is the wedge pattern that appears to exist from 1935 to present.
In short, it seems that we are in the final throes of a cyclical blow off, a supercyclical blow off and a grand-supercycle Wave 4 correction.
Okay, very interesting Shred! But how do we trade this?
Wave 4 corrections on this scale have traditionally been horrible grinding patterns spread over multiple decades.
Think about the sidewards grind of the dotcom bubble bursting and the housing bubble bursting on the SPX. The SPX effectively went sidewards over an extended range for 2 decades.
This time, it will be on a much bigger scale.
If you look at Grand Supercyclical Wave 2, it was a messy ABC zig-zag with an extended drift during wave B.
So, we should look for a more grinding sidewards pattern (to create alternation) perhaps along the line of a large 12345 triangle move.
An example of this is the triangle we saw when the markets crashed during the great depression.
So, I will be looking for some wild swings and big declines spread over a good number of years combined with some big pops and extended bear market rallies.
As far as the depth of the correction, Elliot Wave theory suggests a Wave 4 should be between 14% and 38% of Wave 3.
So, this would equate to a full 14 - 38% of the gains seen since 1775.
This would put markets roughly swinging between the 2022 highs and the 1975 lows over a significant time period (up to 100 years).
So, not the total collapse of civilisation moment that some bears are (wrongly) thinking about.
Not just a straight line down either as some bears are (wrongly) thinking about.
Instead, the setup suggests a nasty grinding correction - just on a very big scale.
So, by way of analogy, you should look to the Triangle on this chart that occurred around the point of the Great depression.
Just on a much larger scale.
To summarise... this means that we are not looking at a "Total economic collapse" and we are not looking at a "buy-to-hold market"...
...instead, the market will favour nimble traders who are willing to switch from long-to-short-and-back over extended time periods and potential hold shorts alongside longs and move from sector-to-sector.
Please. Do your own research and always play safe.