Sunday, June 16, 2019

The Ugly 1937 Top

This is the second post this weekend. Readers may want to view the first one prior to continuing.

I thought it would be helpful to review a period in stock market history far removed from our own so we can get the emotions out of the way. In our time period, it is clear "stocks can never go down again" - at least to some. As many people keep their funds locked away in a 401k account or some other seemingly "safe" vehicle, they are confident the Federal Reserve will always be at their backs, and that this will always keep markets levitated. Some see the beginnings of a decline which is not in five-waves, and they assume a larger decline can not happen. A major Elliott Wave service did this just recently.

So, the period I wish to look at is the 1937 stock market top. It is relatively benign in market history. Nobody really cares about it now. Hey, it wasn't 1929, right? Notice how the first waves off of the top simply - because of overlap - can not be counted as a "five-wave impulsive sequence".

DJIA Cash - Daily - Ugly 1937 Top

Yet, after the point marked A in May, there is, indeed, a lower low in September. This is only to advance the point that the initial decline "must" have somehow been in five waves. In fact, the initial decline can be counted as a very ugly five-wave leading contracting diagonal. Some people see an ugly decline of that type and they just think, "naw, that's just three-waves - right?".

But, following the A wave, there is an even uglier three wave rise (including a failure) which is the (a) wave of a larger B wave expanded flat, followed by the new marginal low (b) wave decline. And this is followed by a literally massive (c) wave up. As the Fibonacci ruler on the right shows, the (c) wave is the 2.618 x (a) Fibonacci extension - to the pip! And, this is very near confluence with the 78.6% Fibonacci retracement level of the A wave - shown by the Fibonacci ruler on the left.

These Fibonacci measurements should be highly persuasive that the count shown is correct. How else would these measurements have worked out so perfectly?

My real question for all readers is this: after that massive and rapid five-wave increase in prices, are you still bearish on stocks in August of 1937? Are you one of those who cites the "recent strength in stocks?" Do you automatically assume "stocks are going over the top"?. Or are you calm, patient and neutral? Do you spend most of your time actually measuring and counting the waves? Do you base your wave view on the measurements, or on your internal emotions?

I ask the question only so you can see how these things work out sometimes. I have shown you the lower low only to help demonstrate the point. Interested Elliott Wave students should look to see if they can find how low the actual decline went. It might surprise you.

This can't happen again, right? The FED has the wind at our back, right? A lot of things are different from 1937, aren't they? Well, yes they are. What does that rule in or rule out?

Have an excellent rest of the weekend.
TraderJoe

16 comments:

  1. Thanks Joe, and yes I do know what the next move was. Interesting times potentially.

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  2. are you entertaining 5 down from may top? i posted the couny several times. you dodnt like the look but it measured correctly.

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    1. Friday's post said Erik B.'s cash count could be a five-down diagonal.

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    2. thanks. we will learn a lot in next week or two

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  3. http://www.ritholtz.com/blog/wp-content/uploads/2011/08/image5.png

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  4. Excellent training,thank you Joe.

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  5. Joe, thanks for the chart! But, the rally after the crash in 1929 that lasted almost six months going into the Spring of 1930 is also what got the bulls excited for potential new highs in the market. This market matches 1930 as well which followed a 89 percent stock market decline over two years. Yikes!

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  6. Possible EDT completion this morning, starting from 2879. Anyone else confirm?

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  7. Possible triangle on cash? Watch to see if the (e) wave is taken out lower. Still possible for ((y)) to extend yet. Cash did not yet hit the 0.618 level.

    https://invst.ly/b18w8

    Just fyi - that potential (e) wave on cash is 2892.20.

    TJ

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    Replies
    1. Cash just broke the (e) wave of that 'smaller' triangle, lower. Only likely way to make a larger ((y)) wave, is for a 'larger' triangle to form here, and then pop up one more time in the overnight. Not required. If we head lower we had yet another truncation high.

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    2. For any larger triangle in cash, must hold above 2,887.00.

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    3. Here is the potential larger triangle to monitor, and/or top.

      https://invst.ly/b19cx

      TJ

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    4. ..potential larger triangle rescued 10 sec. before the close.. lol.

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  8. A new post has been started for the next day.

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