Standard & Poor 500 Index (SPX)

Historical Perspective

The long-term wave count is based on Glenn Neely's analysis (see his book) and is as follows:

The following description should be read with reference to the 3-month chart.

Supercyle wave [3] is likely to be the extended wave. Waves [i] and [ii] of supercycle wave [3] should mimic supercycle waves [1] and [2]. Wave [2] was a 115 year double-three running correction consisting of a 25-year flat and a 21-year triangle separated by a 69 year [x] wave. (see Neely's book, page 219). The crash of 1929 was wave [a] of the triangle that followed wave [x]. The crash retraced approximately 50% of wave [x].

Cycle wave [i] (a third extension impulse) began in 1949 and concluded in 1966. We have been in a double-three running correction since then. The running correction began with a diametric formation (1966-1982). The {X} wave is still in progress and will peak in 1995-96. The pattern to follow wave {X} should be some form of a triangle or a diametric formation with a duration that balances the 16.5 year diametric formation between 1966-82. Applying a 61.8% ratio to the 21 year triangle that followed the [x] wave that peaked in 1929, the duration of the triangle that follows wave {X} should be 0.618x21 = 13 years approximiately. This suggests that wave [ii] will not complete before 2009.

Applying a 50% retracement to wave {X}, the bottom of wave {A} of the triangle that follows wave {X} should be approximately at 233. The 1987 crash low at 216.46 should be a major support. Expect a major decline in 1995-96. This decline will likely be in the form of a crash given the expanding triangle that has been forming since 1987.

It is necessary for the lower trendline joining the 1949 low and the 1974 low to be broken by wave [ii]. It is very likely that wave {X} in progress will break or touch the upper trendline which is drawn paralell to the lower trendline such that it passes through the 1966 peak (termination point of wave [i]).

Note, that my analysis differs from Neely's analysis in one very important aspect. Neely believes that the 1987 peak marked the end of wave {X} and that we are already in the triangle that follows the {X} wave. I disagree strongly with this view since his wave count violates the requirement that wave [ii] end in the vicinity of the base trendline that joins the 1949 and 1974 lows. What's more disturbing is that longer-term charts such as the 6-month and yearly charts have not confirmed completion of wave {X}. Given the fractal nature of the stock market, it is mandatory that all time frames confirm the completion of major waves.

Furthermore, the commodity markets have been consolidating since 1980 and will likely bottom by 1996-1997. My analysis suggests a major impulse wave will follow then. Let's compare the commodity and stock markets historically. When we had a commodity bull market in the 1930s, we had a triangular consolidation in the stock market. This period was then followed by a triangular consolidation in commodities and a bull market in stocks (1949-66). Following this period, we got an X-wave in commodities (1970s bull market) and a triangular consolidation in stocks. We have been consolidating in a triangle in commodities since 1980 and we have had a bull market in stocks since 1982 (X-wave). It is very likely given such symmetry that we will soon have a major impulse move in commodities accompanied by a consolidation in stocks.