During the last several months, I’ve been looking at two scenarios for this unprecedented stock bubble.
Scenario 1 involved a peak in late September, but I’ve now ruled that out.
The following chart is one of a few I’ve been tracking to compare this with past initial bubble crashes. I want to see if any market downturns look like just another correction, ala early 2018, or a real crash in the making, ala late 1929 or early 2000 in the Nasdaq…
Well, as you can see for yourself, this latest market swoon does NOT look like a crash.
If it was the beginning of the end, it should’ve seen a follow-through, much sharper wave down by late November, or early December, as what happened in the first few months of late 1929.
But that’s not what’s happened.
Instead the market is reversing rapidly and today is hitting within 4% of its late September all-time highs.
New highs are very likely now, it’s just a question of when and how high.
That means we’re in scenario 2, which will see a final wave up into 2019.
My favored target, which I set using my best longer-term cycle, would be the latter part of 2019.
Early September 2019 would be an exact 90-year lag from the infamous 1929 Dow peak. And I now call this 90-year cycle the Great Bubble Buster!
But Beware the Two Wild Cards…
However, we do have two wild cards here:
Wild Card #1: The China negotiations that just tilted more favorable and caused Monday’s roughly 500-point up projected open (but mark my words, this trade war is far from over…)
Wild Card #2: Trump’s mushrooming legal challenges, which could lead to major problems as soon as early 2019 if he’s forced out of desperation to fire Mueller.
This cluster F with Trump is following Watergate very closely on a 45-year lag – one of our most important cycles. And remember, the markets didn’t react that much to Watergate until Nixon fired the special prosecutor back then.
So, to summarize here, we are now tracking my original scenario 2. And within that, there are two new scenarios (I always consider two scenarios when forecasting), both with the greatest stock bubble in modern history peaking in 2019.
New Scenario #1: The most likely – the market continues to advance to around 30,000-plus on the Dow in one final blow-off rally into late 2019, then we see an 80%-plus crash (like 1929–1932) into mid- to late 2022 or so.
New Scenario #2: The Dow makes a final near-term run-up to a new high between late December and February or so, and then starts to correct sharply again. In that case, we would be on the clock again, looking for those first signs of that 40% or so crash in the first two or three months to determine whether that is a top or not.
Investors and the economy should have some more breathing space for a while here…