Monday, April 27, 2020

SPX, INDU, Oil: A Rare Look at Supercycle Degree

Before we get into the equities market, I want to briefly touch on oil, as it provides a rare study in what can happen during a correction at Supercycle wave degree.

As most who follow my work already know, Elliott Wave is based on the fractal nature of markets.  Fractals display self-similarity across time-frames, so the same wave patterns thus recur across different time frames (the fractals on the daily charts are made of smaller similar patterns on the hourly charts are made of the same, smaller fractals on the 5 minute charts, etc.), referred to as "wave degrees."

The largest degree any human can (practically) be expected to observe during their lifetime is generally considered to be Supercycle degree.  (There is also Grand Supercycle degree -- and certainly even larger degrees of cycle that haven't been named -- but things that occur over hundreds or thousands of years simply won't be observed from start to finish by your average human.)

Most are aware that there's been some pretty historic price action in oil recently.  The truly historic nature of the times becomes quite apparent when viewed in context of the last 150 years:

That's pretty incredible when you think about it.

Back in 2011, I discussed my belief that oil was in the middle of a correction at Supercycle degree. At the time, fundamental analysts were telling us that we had passed "peak oil" (which, in my view, is a fundamentally flawed theory to begin with and based on incorrect presuppositions; but that's another discussion) and that oil would get more and more expensive and rare.

Of course, they were dead wrong.

But that was the context of 2011, when I predicted that oil would ultimately crash all the way down to 25.  (Little did I know that my target was too conservative!  It seemed outrageous enough at the time.)  But here we are -- and I simply want to show this because it's important to understand the absolutely destructive nature of a correction at Supercycle degree -- few people alive can say they've ever witnessed such a wave.

Now we have.

In equities, the market is in the process of retesting its prior high (or will be at the open):

No change to the big picture -- and ideally, there won't be (but still open to the possibility):

In INDU/SPX can sustain breakouts over their prior highs, then a test of the blue line on this INDU chart and 2950-3000 SPX would be possible:

In conclusion, not much to add since last update.  Trade safe.

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