While other analysts are trying to “map out” the decline based on prior crashes, each one is different. What I am attempting to do is compare the magnitude of bearish formations, primarily the Cup with Handle. There are still some noteworthy differences and the final outcome may not be the same.
First, the differences:
- The 1987 crash was an A-B-C/ Wave (4) formation which quickly ended after the crash. Today’s decline is part of a complex, multi-staged impulse of 5 waves. The Intermediate Wave (3) we are about to see today is is the same degree as the Intermediate Wave (4) of the 1987 crash. In other words, we are only comparing a singular move within the larger Cycle, not the entire anticipated decline.
- Which leads me to the next point. The current decline may be a Cycle Wave I of a Super Cycle Wave (c) of a Grand Super Cycle Wave [IV]. For comparison purposes, the entire decline from September 3, 1929 to July 10, 1932 was a Grand Super Cycle Wave [II] with a 90% total loss in the DJIA. Grand Super Cycle Wave [IV] began on March 23, 2000. Thanks to the Fed intervention in 2009, the SPX enjoyed a 16.4% annual compound return in Super Cycle Wave (b). However, the compound return since March 23, 2000 to January 3, 2022 is a sub-par 5.3%.
Now for the similarities:
- The 1987 crash [Wave(C)] lasted from October 3 to October 20, 1987. A 17.2 calendar- day, 12.9 market-day decline. Today’s decline shows an identical potential with the decline possibly ending June 21 from last Friday’s high.
- The Cup with Handle formation in 1987 projected at 38.2% decline. The same formation in 2022 also projects a 38.2% decline. And its likely to do so in the same amount of time.
- Both the 1987 crash and the projected decline may go through a very heavy op-ex. See the article below. Should the SPX decline beneath 4000.00 before options expiration, all bets are off.
- The target is only an estimate. The decline may go lower or not as low as projected.
In summary, the coming decline is not the end of the bear market, as many believe. It is a multi-staged event that may last to mid-October or mid-November. That will only end Cycle Wave I of a 5-Wave Cycle. I have speculated earlier that the decline may last a total of 2.58 years. That may be early August, 2024. An alternate date for an end to the decline may be in January 2026. The Chart below visualizes the outcome.
ZeroHedge informs us, “A feud is erupting within the Goldman trading floor, where a group of traders led by the bank’s head of hedge fund sales, Tony Pasquariello, are turning more bearish by the day and appear to be set on a ideological convergence crash course with BofA’s Michael Hartnett (of “The Market’s Summer From Hell Begins, And Just One Thing Can Stop It” fame), while what’s left of the bulls finds solace in the weekly musings from flow trader Scott Rubner, who did not disappoint (his fan group) and as he writes in his first June Tactical Flow of Funds note (which is a must read for all bulls, and is accessible to professional subs in the usual place), he is extending his “tactical, unloved, equity rally call for another few weeks into June.” Rubner notes that “the number #1 question to hit my inbox this week: Could we rally through the end of the quarter?, a view which he explains “is not consensus”, and which he answers with a decisive yes, adding that “this is the best market technical set up for a rally that we have seen in 2022, and the buyers come out higher. Outflows just flipped to inflows”, but perhaps more importantly, in less than two weeks the market faces a gargantuan op-ex where over $3.2 trillion (near an all time high) in options expire, and which will spark a historic “gamma unclenching”, which if tactically coupled with a surge in buybacks and a short squeeze, could see this market explode higher into the third fourth of the month.”