Stock Market Crash

This article about the impending down-turn in the US stock market was written in April 2000. It explains why I believed that the western stock markets, specifically the US Dow Jones Industrial Average, had ended a huge supercycle bull market and was about to go into a large bear market.

NEW Click Here for 2004 Update (May 16th 2004)

I forecast that the crash would be greater than previous crashes of 1929 and 1987. So far we have seen falls of around 80% on the NASDAQ, DAX, 50% on the FTSE and 30-40% on the Dow and S&P indices.

One of the techniques I use in my market analysis is Elliott Wave Principle. The basis of this method is this:

There are two types of wave pattern in market movements – Impulsive and Corrective.

An Impulsive wave goes in the direction of the trend and can be broken down into 5 smaller sub-waves.

A Corrective wave goes against the trend and can be broken down into 3 sub-waves.

Once this pattern is complete (i.e. 5 waves up, 3 waves down) it will complete 1 wave of a larger degree. After this larger degree makes the same 5-3 pattern, this will complete 1 wave of another degree higher, etc. ad inifitum.

There are several different patterns, shapes and extensions that can form, which can make counting the waves awkward. So it is often difficult to put a definite labelling on a pattern after it has completed, let alone while the pattern is still forming. That is why I, personally, use Elliott Waves more for a LABELLING technique than a trading method.

If you want to learn more about Elliott Wave Principle, you can buy the book of that title from this website's Online Bookstore.

Anyway, on to the topic of ‘A Stock Market Crash….’

Here is a chart of the Dow Jones Actual Weekly prices from 1994 with one of my Elliott Wave labellings. As you can see, there is a definite five wave pattern (labelled with large numbers) and each of these waves can be broken down into 5 obvious subwaves.

It is often difficult to call the top of a pattern as the waves can extend. For example, this could be PART of an extending 5th wave. But it can only go on for so long before the market at least goes into a MAJOR correction, or reverses into a new bear market. (A bear market will take the same 5-3-5-3-5 count, but going downwards rather than upwards. If the decline was to be a CORRECTION then it would most likely make only 3 declining waves.)

And I believe that this five wave advance from 1994 is the end of a larger five wave pattern from 1930... which could also be ending a five wave pattern from 1695!

That is why I am calling this to be the end of a bull market that is about to plummet like you have never witnessed before! Unlike the CORRECTIONS in the Bull Market in 1930, the 1970s or 1987... this is NOT A CORRECTION! This is a BEAR MARKET!

Everything is reversed. Any declines will down-trend in counts of 5-3-5-3-5 and any advances will CORRECT in (probable) 5-3-5 counts.

Of course, this is a very long-term analysis and almost impossible to trade with little risk. It is important to have an understanding of Elliott Waves so that you can recognise if the analysis proves to be incorrect.

Also, when trading futures contracts, with limited time restraints and high leverage, one should look to trade smaller trends, probably on intraday, daily or possibly weekly charts.

NEW Click Here for 2004 Update (Dec 14 th 2004)  

You can purchase Elliott Wave books from this website's online bookstore. I recommend Elliott Wave Principle by Robert Prechter. At the Crest of the Tidal Wave and (an updated style version) Conquer the Crash are also superb!