I'd like to expound on just why it may be that Bernie is "so bullish." |
I haven't read him much and don't know the depth of his use of Elliott wave analysis, but I do believe it must be upon this that he is relying.
If you look back on the daily charts to when this longer-term bull run began, you would probably spot 8/13/82 as the significant date when the 17 year consolidation phase ('65-'82) ended, and the bull once again came to life. At that point, the S&P 500 Cash (SPX) was 101.88 From there, a very clear-cut 5 wave move ensued over the next 11.5 years and ended 1/31/94 at 482.85. This completed wave 1 of the 5 wave supercycle begun on 8/13/82.
From 1/31/94 to 12/9/94, the market etched out an ABC correction that included a couple of 10%+ declines, and finished this wave 2 (corrective wave) at 446.97. Wave 3 , noted for its greater strength and size in most 5 wave moves, lived up to form over the next 2.75 years, taking the SPX from 446.97 on 12/9/94, to 964.15 on 8/8/97, a whopping 517 points, and modestly larger than wave 1's 381 pts. Since 8/8/97, we traced out an ABC correction for Wave 4, with A terminating on 9/11/97, B terminating on 10/7/97, then C terminating on 11/13/97 at 900 on the SPX. This ended the corrective 4th wave of the supercycle begun on 8/13/82.
The 5th wave immediately sprung to life from there, taking the SPX up to 986 by 12/5/97. This completed 1 of 1 of 5 (1st wave up of the first wave up of the 5th wave up of the supercycle begun in '82). Since 12/5/97, we have traced out a nasty wave 2 of 1 of 5 ABC correction, with A terminating on 12/26/97, B terminating on 1/5/98, and C terminating last Monday, 1/12/98. From here, we started wave 3 of 1 of 5 up, which has brought us up over 50 pts. in just a week.
What I believe Bernie is focused on is that it is very common for the 1st and 5th waves to be nearly identical in size when wave 3 exceeds wave 1 in size. As stated earlier, Wave 3 was larger in this supercycle move (517 vs. 381). Therefore, one could simply add the size of the 1st wave (381) to the value of the SPX at the termination of wave 4 (which was 900), and acquire a very good read on just how high wave 5 should run. 1280 give or take 10 pts. should be fairly accurate. with the SPX @ 961 now, we have 320 pts. or so to go. On a Dow equivalent basis, the current multiplier of the dow vs. spx is 8.06. 320 X 8.06=2580pts.+7750(current dow)= 10330 Dow Top Prediction.
Concerning his call for the dow to reach this level by year end, I would have to strongly agree for the following reasons:
1) Wave 1 took 11.45 yrs. to complete, and wave 3, a 36% larger point move, only took 2.75 years to complete. If following the same declining ratio for wave 5, an estimate of 8 months for this 5th wave is in order. Since it (wave 5) began on Nov.13, 1997, this would call for the completion of the wave by July 13th, 1997.
2) Wave 2 and Wave 4 of the Supercycle followed similar declining duration ratios, with wave 2 taking 10.3 months and wave 4 taking only 3.25 months to complete. This points to a Supercycle that continues to accelerate its stages of completion.
3) This "Parabolic" style Wave Progression, culminating in a sharp, runaway 5th wave rally, has been seen before in many indices and securities. Looking at the SPX on a weekly chart 6 months from now, it will no doubt look hauntingly similar to the Iomega '96 pre-crash parabolic-style momentum where the move is steep ('82-'94), steeper ('94-'97), and steepest (Nov '97 - July '98).
Best of luck in trading the rip-roaring move in the months ahead of us!