When do you think things will return to normal?

Maria Bartiromo to her guest on Fox Business this morning

Here are the facts. The stock market peaked Feb. 12 at 29,551 closing. The first wave down lasted 26 trading days ending March 23 at 18,214. Wave two up was equal in time ending this past Wednesday April 29 at 24,633. Wave three began immediately Thursday closing down 288. In pre-market trading Friday the DJIA was down over 400 points.

How can I be so sure Feb. 12 was a terminal top? Volume on the wave two rebound declined every one of the 26 days. If this were a new bull market (the mantra of every Certified Financial Planner) volume would be expanding.

But hold on Professor, the NASD has recouped near all its drop. Yes but that is due to the over weighting of five tech stocks which account for 38% of the NASD value. Those same five are 20% of the S & P 500. Breadth (fewer and fewer stocks participate in the rally) is the final casualty of a bull market. On Feb. 12, 80% of the S & P 500 were over their 200 day moving average. That number peaked again at 30% on Wednesday. Watching TV cable business news which touts every rally in five stocks as the entire market is grossly misleading.

So what went wrong? Only the US Stock market recovered to a new high after the 2009 market low. The rest of the world never made a new high. There is TMS Too Much Stuff financed at low rates. The solution is lower prices (deflation) and bankruptcy, the latter now underway in the oil patch.

Learn Elliott Wave Theory for EWT free at https://school.stockcharts.com/doku.php?id=market_analysis:introduction_to_elliott_wave_theory. Only a realistic map of human behavior will prepare one for what lies ahead.

The EWT is simply that mass psychology in a down market moves in three waves down (1,3,5) and two correcting waves (1,4) up and sideways. Elliott was an accountant who observed these patterns in greater and lesser fractals in the 1930s. When social mood is strong, the theory is evident on most charts and works well. Note how specific the dates and turn points have been. Readers are also advised to check out http://www.deflation.com.

Meanwhile the media will distract with headlines like one I see now, Futures fall after Trumps China tariff threat. No, futures are falling in predictable Elliot Wave fashion, the virus and tariffs are just extraneous noise distracting from reality.

Most readers will reject these warnings of a looming bear market. The wave two rebound has been strong, re-enforcing the buy and hold mentality. The reality of the bear market will only dawn after wave three takes out the previous low of 18,214. Financial advisors will cheerfully recommend buying all the way to 18,214 claiming these are once in a lifetime bargains. The carnage in the energy markets is a precursor of what lies ahead for other sectors.

Producers have begun shutting in oil wells. There may be more storage than first thought. The oil price has rebounded to $18 (from negative $30) but that is not a price which is economically feasible for the industry. For those interested more detail and frequent updates are at

https://professorelam.typepad.com/markets/

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ELAM: Depends on What You think is Normal - Odessa American