Is the Bear Market Almost Over for the S&P and Silver?

When is it going to end for the stock market woes and for silver? The Elliott Wave analysis which helped us see this major top for silver and gold is giving a signal for the general stock market as we find it in the S&P 500. The chart below sums it up and tells us that the S&P bear market is almost over.

To give the main background, the stock market has been correcting the bull market of 1974 to 1999 (wave 3 at top left of chart). Before that we had a bear market between 1968 and 1974 (wave 2) which corrected the bull market of 1942 to 1968 (wave 1). We are now in correction wave 4 which is just about done. When that finishes it will be a final multi-year wave 5 up to complete a mega 80 year bull market which will be followed by a major bear market that may well exceed that of the 1930s and early 1940s.

Note that the S&P500 has been tracing out what we call a flat wave. This is the most common wave formation for a wave 4 and it has more or less been working itself out in textbook fashion. That means that the final leg down (or C wave) will erase most if not more of the B wave before we call this bear market over. Where that C wave is heading is shown on the decomposition of the wave to the right of the chart. A wave C of a flat correction is a 12345 impulse wave 90% of the time, so we have a degree of confidence in our wave analysis. We are actually in the worst part of the C wave as we enter the infamous “wave 3 of 3”. That strongest downside will end soon and will then embark on a wave 4 correction before the final wave 5 down completes the 8 year bear market. Where that ends exactly will only become apparent as the pattern unfolds but I have a personal conviction that boarding the stock market train near that point will see great returns into next decade.

So where does this leave silver? I have always advocated sensible asset allocation; never put all our eggs in one basket because the future may not be as certain as you think. With that in mind a proportionate and reasonable allocation both to equities and precious metals is in order. The truth for silver just now is that until this economic downturn blows over, silver is not a buy. There may be short term opportunities in silver (e.g. a B wave rally) but the real bottom lies a little further ahead. A chart of silver versus recession proves our point.

Note that silver does not do well during the recessionary periods in grey bars. I see no reason for that to change and am actually surprised we haven’t entered a recession already. When recession blows over and the main economic health indicators begins to flash green again we will be back into silver and look forward to more upside as inflation again begins to assert itself across the board. We will keep subscribers informed of both the general stock market opportunity as well as the precious metals one.

In the meantime keep your powder dry as fabulous buying opportunities beckon ahead of us!

Comments

[GMiki1:]

I read Elliot Wave analysis and I know how variable it can be in hitting its target. I don't see how this column can be correct in regard to silver since what we have are physical silver shortages. Fundamentals of supply have to enter the equation somehow.

2008 Oct 07 04:24 PM

[TarCottage:]

Hi Roland:

I enjoy your Elliott Wave comments and always read them with great interest because few are brave enough to publish their Elloitt Wave counts for all to see. Not being at all an expert, it is my understanding that generally the very long Elliott Wave usually consists of about five waves (3 up and 2 down + more shorter waves inside of these waves, which is where I get lost!).

However, have you ever considered that maybe the time periods you have assigned for your 1-2-3-4-5 Elliott Wave positions are off? Below is the reason why I think you might want to reconsider the timing for your Elloitt Wave counts.

To my way of thinking the 5th Elliott Wave of the long term bull ended about 2000 and with that a new long term bear market then started. I am using 2000 as the end of the secular bull because (my) Elloitt Wave (count), Knodratieff Wave, and Ian Notley all seem to generally concur on this date.

I believe most people don't understand that we are already in a bear market and have been for 8 years now. In a bear market, buying the dips and holding (as you do in a bull market), provides little upside (reward) but plenty (mostly) of downside (risk). All risk and no reward, hardly a winning stradegy.

In a bear market, to make money investors (not traders) need to avoid investing in those sectors of the market that are in secular (long term) bears and only invest in those areas that are in secular bulls. Starting about 2000, maybe earlier, energy and gold began their secular bulls after having been in secular bears since 1980. Starting in 2000 just about anything based upon paper (i.e. financials, banks) entered their secular bear.

What seems to have confused most people is the so called bull market that started about 2002 ending mid-2007. I believe this actually was a bull rally in a secular bear market. Many will say but this rally reached the same high as the dot.com rally in 2000. Yes, nominally it reached the same number, but when adjusted for the "real" rate of inflation, at best it retraced about 1/2 of it's 2000 high.

So if investors make the mistake of continuing to invest as if they are still in a bull market, then they are going to experience continuing losses. This is because in a secular bear, each succeeding bull rally makes lower highs and each bear portion lower lows. It is like going down rapids. If you buy and hold like you did in a secular bull, you are going to go lower and lower. That is like trying to make money by buying high and selling low.

It is for the above reason that I am questioning the timing of your Elloit Wave counts. I think if you adjust your Elloit Wave count with the 5th wave of the secular bull ending in 2000, you will find many of the little things that haven't made sense will start making more sense and agree better with current market conditions.

Best regards.

2008 Oct 07 08:06 PM

[jurrassic:]

User173148 sure makes much more sense and I beieve is correct. We will test the 888 level of the S&P of 03 shortly. That's 100 more points on the downside.

2008 Oct 08 08:57 PM