In several past articles, I have tried to prepare those reading my analysis for the strong probability that we can see a long-term bear market in the . I have outlined the many reasons supporting my perspective, and have provided a few supporting charts in various prior public articles.
But, I will tell you that the pushback I have seen that this is even “possible” is much greater than I had expected. Many commenters have provided one reason after another as to not only why it is not likely, but, in their minds, it is simply not even possible. While I have addressed all their reasons in various prior articles, I doubt they really care. Too many investors are seemingly going through their investing careers while donning blinders.
You see, people just don’t want to even consider something so difficult to accept. Believe me, I would rather not have to consider this potentiality. In fact, I am even praying that I am wrong in my assessment. But, thus far, I am not seeing anything to the contrary to make me change my perspective. Yet, again, I am praying for it, as I do not want to live through the ramifications of what that would mean to society.
Rather, too many of you are hyper-focused on the news of the day in order to make your decisions. But, history should have taught you the foolishness of such an approach. Consider how important everyone in the market thought DeepSeek to be as to the direction of the market. Yet, that lasted a total of one day, whereas the next 5 days saw the market move in the exact opposite direction as it attempted to test the all-time highs. So, how important was it really?
But, I digress.
Getting back to the issue at hand, I have even been publishing articles about banks over the last two years to warn people to prepare now before things actually turn critical. While I have tried to be clear that the banks I highlight are not imminently going to fail, I do outline that they run the risk of failure once the bear market I expect begins, and we see pressure placed upon our financial system. Consider that approximately 40% of banks failed during the Great Depression, and that was a much shorter bear market than I expect to see over the coming decades.
Consider what happened during the 2007-2008 stock market decline and financial crisis. How many of the larger banks were on the verge of collapsing? Even when considering that the larger banks were bailed out by the government, there were still approximately 15% of banks that went out of business even during such a short bear market.
Now, I want you to also consider the Great Financial Crisis was caused by only one issue on bank balance sheets. Many of you probably do not even realize that there are five yes, five major risk factors sitting on the balance sheets of larger banks at this time, and the problem is getting worse with each passing quarter.
These risk factors include major issues in commercial real estate, rising risks in consumer debt (approaching 2007 levels), underwater long-term securities, over-the-counter derivatives, and high-risk shadow banking (the lending for which has exploded). So, in our opinion, the current banking environment presents even greater risks than what we have seen during the 2008 GFC.
And, I am quite confident that there will no longer be any government bailouts, as they will not likely be able to backstop all the issues that will likely arise. Of course, many consider the FDIC as the backstop for such difficult times. But, did you know that the FDIC incurred losses of $35.1B and $38.1B for 2008 and 2009? Moreover, the Deposit Insurance Fund (DIF) balance went into the negative by $21B.
Again, it is important to note that this was during a relatively short bear market. Consider what a long-term bear market may do to the system. Moreover, I believe the US will likely be moving towards “bail-ins” rather than choosing the route of bail-outs. And, if you do not know what a “bail-in” is, I strongly encourage you to read our prior articles on banks or do your own research. To give you a head start, I will tell you that it all started in Cypress.
Now, allow me to remind you of the wise words of Benjamin Franklin who noted:
“By failing to prepare, you are preparing to fail.”
So, rather than choosing to prepare, many commenters have thrown their hands in the air and claimed that if things get that bad then there is nothing that can help them. Well, again, consider that approximately 40% of banks went out of business during the Great Depression, which means that 60% of the banks survived. Would you not want to give yourself the best opportunity to be among the ranks of those banks if things do get that bad? Is it wise to just throw your hands into the air and give up? I know I would not easily give up the financial security of my family.
Furthermore, what would be the downside of trying to protect yourself or at least developing a contingency plan if there is even a 30% chance that I am correct? And, I can assure you that I believe it is a much greater probability.
Yet, for now, I have no indication that the bear market has begun. Rather, I have provided a very specific test as far back as November of last year as to my initial signal that a long-term bear market has potentially begun:
“It is for this reason I am seeking confirmation before I proclaim a long-term bear market to have begun. That confirmation process begins with a breakdown of the 5560-5670 SPX region. Until then, I am maintaining an objective perspective that we can still rally to the 6273-6377 SPX region before that major top is struck. And, it is due to this objectivity, our concern for our clients’ financial well-being, and our consistent accuracy which has earned us the trust of our 8500+ subscribers and almost 1000 money manager clients through the last 13 years.”
As of now, I am still of the same opinion in the near term.
S&P 500: Key Levels for the Week Ahead
For the coming week, the first support to watch is the 5900SPX region. As I write this update on the weekend, the market is set up to test that region in the coming week, as long as Friday’s high is respected as resistance. And, should we test that region in the coming week, then the 5935-5985SPX resistance will tell the story thereafter.
If the market is unable to get back over that resistance from the drop to the 5900SPX region, then it points us down to test the support noted in the analysis above from November. However, if the market can hold over 5900SPX in the coming week or so, and rally impulsively through the noted resistance, then we can continue to rally to test the next resistance region in the 6273-6377SPX region in a more direct fashion from the 5900SPX region.
Now, I am going to address the comments I see so often that Elliott Wave analysis is not saying anything other than the market is going to go up or down. Clearly, that is an incredibly superficial manner in which to view Elliott Wave analysis. Rather, Elliott Wave analysis provides very specific levels to watch how the market reacts, and based upon the structure of that reaction, it tells you how to adjust, if need be. In fact, you will not see any other analysts provide to you such detail on both the upside and downside in the market, especially which hit their targets as often and as accurately as we have over the last 13+ years we have provided our analysis.
As I have said many times before, this is no different than if an army general were to draw up his primary battle plans, and, at the same time, also draw up a contingency plan in the event that his initial battle plans do not work in his favor. It is simply the manner in which the general prepares for battle. We prepare for market battle in the same manner. So, rather than approaching a non-linear market environment with one linear perspective, we approach it with an objective, non-linear perspective based upon Fibonacci mathematics.
So, as I write this missive over the weekend, the market is presenting itself in a near-term bearish posture. Yet, until the market actually breaks down below the larger degree support I have noted above, I still think we will see the 6273-6377SPX region before we consider that a major top may be struck. But, as you can see, we have our specific and objective parameters, and they are outlined above. Is your approach this specific or objective?
#LongTerm #Bear #Market #Simply #Impossible #Today
