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.
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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
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
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
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!