The Long-term Outlook for the Stock Market Looks Bleak: When and Where Will It Top?
Recently, several data points came to my attention that, when combined with my preferred bigger picture Elliott Wave Principle (EWP) for the stock market, start to point towards a massive top brewing. Afterward, potentially all the gains since the infamous March 2009 low will be erased. This article will focus on the S&P500 (SPX), but the ramifications are applicable across all major US Indexes. As I always say to my premium major market members, “to those who want to listen, forewarned is forearmed.” And this article is precisely meant to be like that.
The first data that came to my attention was a Tweet by Mark Ungewitter: He found, “Today’s normalized P/E ratio of 27x [for the SPX] suggests a negative 10-year forward return. … Many possibilities on the road to dismal returns.”
The second piece of data, along the same P/E line, was a more recent interview of Barry Bannister from Stifel by Barbara Kollmeyer. He showed how the SPX fared over the last hundred years when then index’ P/E started moving above its normalized P/E ratio. It can be boiled down to a simple statement “Later in 2022-23E, we believe the ‘behind-the-curve’ Fed might create the third bubble in 100 years, by 2023 to 6,750 for the S&P 500 (Nasdaq [approximately] 25,000),” said the Stifel team. Then the third bubble in 100 years is coming.”
The third piece of information is based on an article by Brian O’Connell, where he interviewed James ‘Rev Shark’ Deporre, who “sees ongoing erosion in the markets even if it’s not happening in a typical way.” In other terms, only a few big-bloated mega-cap stocks are holding up the market-cap-weighted SPX. This “bad breadth” is evidenced by, for example,
- the decreasing number of stocks on buy signals for the NASDAQ,
- the increasing number of 52-week new lows for individual stocks in the NYA and NASDAQ,
- the long-term decline in the average number of stocks above their respective 200-day simple moving average for the SPX.
Figures 1. Market breadth indicators
The fourth piece of evidence, which aligns rather well with the “S&P500 to 6,750 by 2023” by the Stifel team, is my intermediate- and long-term EWP count for the SPX. It points towards a top around SPX6000 for a Super Cycle Wave-III by late 2022, early 2023. See figure 2 below. Since it is always good to get independent confirmation of work from others that I respect, as two know more than one, I found that Avi Gilburt, for example, is looking to similar heights and fears the next 10-20 years. As well as some excellent work by “Pretzel,” who introduced me to the EWP over a decade ago.
Figure2 intermediate- and long-term EWP count for the SPX.
Lastly, what is the importance of a Super Cycle Wave-III high, you may ask? Well, as described in my book “Tomorrow Happened Yesterday,” using the Dow Jones, I deduct that the 1929 high was a Super Cycle Wave-I high, and the subsequent low in the 1930s the wave-II low. The index and our society have ever since been in this SCW-III. And as we know by now, after wave three come wave four and five. Thus it is inevitable that the markets will enter an SCW-IV. As mentioned in my book, Mr. W.D. Gann forecasted 2024 to be a panic year, just as he forecasted 2020 would be, lasting through 2028.
Bottom line: Independent evidence suggests a significant market top is brewing within the next two years and that most of the gains since 2009 will be erased after that. As the SPX will now navigate through its 4th and 5th waves to ideally SPX6000, wrapping up the rally that started going back to the early 1930s, now may be a good time to start thinking about an exit strategy.
The pending pain for those who will sit through another lost decade will likely be insufferable as it will take many years for the markets to get back to breakeven. However, one silver lining is: once SCW-IV completes, there will be many decades for SCW-V to unfold. So those who will be able to keep their gun powder dry will then do well. Or as they say, “(s)he who will lose the least amount of money in a Bear market comes out the winner.” And “Out of the ashes, the phoenix will rise again.”