The Big Long in World Indices

elliottwaveforecast · August 28, 2017, 1:43pm

Since the decline starting from year 2000, the world has been calling for a huge crash in world indices. The world indices did in fact corrected nicely in the year 2000 and 2009. The correction took the form of a FLAT Elliott wave structure and reached 50%-61.8% of the all-time rally in most of the world indices. This correction is even recorded in a movie titled “The Big Short” telling story about a group of traders shorting the market.

The crowd does not have enough with the 50%- 61.8 % correction between year 2000 and 2009, which is almost 9 years of correction. People want more and they want a crash after another crash. However, the reality is that the Market does not work that way. Most traders do not have a long career as most believe that the World Indices trend is bearish following the 2009 decline. This is a wrong bias which has cost traders billions of dollars.

The World Indices trend will always be bullish because it’s simply the Human nature. We used to live in the cave, but now we have a nice house, hotels and many other development to make our lives more comfortable. This is called progress, and by nature, we humans always will look for something better and the Indexes are a reflection of the Human progress. We understand that corrections are needed and they will always be a part of the Market. We can say that traders who shorted in 2007 – 2008 and caught the move lower got very lucky.

The World Indices ended the all-time cycle until that moment at 4.2.2000 and pullback in 7 swings into the 776 area using the $SPX as reference. By 2002, the correction has reached 50% of the all-time rally ina corrective 7 swing structure, and technically the correction was enough and a new bullish trend could develop. The World Indices even made a new high in 2007 and then crashed into a C wave completing a flat structure. Selling wave B at 2007-2008 high into wave C lower with a new high above the previous peak at 2000 is luck. Yes the move lower happened, but selling is against the trend at that time, and whoever caught that short got lucky.

It sounds and looks easy in a movie, but it is a wrong trade. It is a mass crowd trade, and we know better. We proposed “The Big Long” instead, which is more natural and easier to trade with no pain. The Index has rallied since 2009 and this rally is the good side of the Market, the one with no pain. The trend is always smoother and more natural, but most of the time the crowd does not see the trend. We do understand The Big long has reached the minimum target at 2234, if it is labelled as an ABC or a corrective sequence. However, the Market is saying more upside is possible and 3197 can still be reached if the Big Long becomes an extended Big Long.

Trading is about reading the Market and understanding the natural path and not forcing against the trend. We keep and will keep calling extension and buy into The Big long because we understand that pickers got it right one time and wrong 9 times. We would rather get it right 9 times and wrong 1 time. As we always said, nobody is 100% correct and it is impossible to be perfect, but when you trade the trend it becomes easier. The Big Short which everyone is waiting is a crowd and popular trade. The reality is that few people look the other side which is the Big long. This side is not over and can become extended Big Long.

SPX Elliott Wave Chart

elliottwaveforecast · August 29, 2017, 1:56pm

SPX Elliott Wave View: At Weekly Inflection Area

SPX S&P 500 Long Term Elliott Wave view suggests that the Index has reached the minimum target at 2234.35 to end a big cycle from an all time low. If we assume the Index starts from all-time low of 0, then the rally can be labeled as a zigzag Elliott Wave structure. The first leg wave A ended in March 2000 at 1553.11 during the dot com bubble. From 2000 peak, the Index corrected in 3 waves and reached 50% retracement at 766.67 in the year 2002. SPX then started a new leg higher which broke above 2000 peak in October 2007. Technically, with the break above 2000 peak, S&P formed a bullish sequence (a higher high) from all-time low and the natural path is to extend higher, especially considering that it has corrected 50% into 2002.

As SPX formed a new peak in the year 2007, the Market did an unexpected detour. Instead of the natural path of extending higher, the Index declined strongly in 5 waves into the year 2009 during the financial crisis due to subprime mortgage default and collapse of Lehman Brothers. This collapse is even captured in the movie titled “The Big Short” when several traders made money by correctly betting on the ensuing crash. In reality however, these traders got lucky as they were trading against a natural cycle, which happens only in a wave C of a FLAT structure.

The decline broke below 2002 low, sentiment was very negative at that time and no one was talking about buying the Index. What people don’t realize is that the Market is a reflection of human progress and thus it should never go back to zero. Correction is natural and allows the market to reset. The Market ended a 3-3-5 Expanded Flat Elliott Wave structure in 2009 and then began the Big Long. Interestingly, nobody is filming or talking about the Big Long, and nowadays most people still talk about the impending big crash almost every single year even when the market keeps rallying. Almost nobody is talking about how great the move higher is as people don’t understand the primary trend in the human nature is up.

Right now, S&P has reached an interesting weekly inflection area in which we can label the entire move from all time 0 as a zigzag Elliott Wave Structure. Wave A started from all-time 0 to 2000 high. The 3 waves correction from 2000 high to 2009 low is labelled as wave B and take the form of Expanded Flat. Then from 2009 low to present day, it is labelled as wave C. The minimum target wave C = A at 2234.35 has been reached, but that doesn’t mean the Indices will crash from here. We acknowledge that the Index could indeed have a decent pullback from this area, but keep in mind that it’s possible for the Index to extend higher within the blue box at 2234.35 (100% of A-B) – 3196.41 (161.8% of A-B).

If the Index reaches 3196.41, then the whole move from all-time 0 can be labelled instead as 1-2-3. If reaching 3196.4, the third wave in this case is extended, which is the typical characteristic of wave 3 in an impulse. Thus the Big Long at this point in time can even become an extra Big Long, until it gets denied.

SPX S&P 500 Long Term Elliott Wave Chart