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Severe Bear Market: Will You Be Among the Prepared 1.5%?

“Oftentimes, rallies will end with an inter-index non-confirmation”

by Bob Stokes
Updated: August 05, 2022

A long-long time ago in a galaxy far away... errr, on the heels of the year 2000 dot-com crash, to be exact -- which is ancient history for many investors today -- our February 2003 Elliott Wave Theorist published an interview with Elliott Wave International President Robert Prechter.

Prechter was asked if he was surprised by investors' lack of capitulation since the bear market started in 2000.

Prechter replied:

I read a statistic that said no more than 1 to 1½% of investors actually got out. This is utterly typical. The average investor stays in. [emphasis added]

This is mentioned because the patterns of investor psychology tend to repeat, which is the entire basis of Elliott wave analysis, which helps you track those patterns on the scale from intraday to multi-century.

So, with that in mind, consider what our July Elliott Wave Financial Forecast says:

Even as stocks fell hard into the middle of June, the bullish resolve of investors remained on display. On June 14, for instance, Bloomberg reported that "Undeterred Retail Traders Piled into Stocks."

The chances are high that many of these investors will hold onto to their stocks into the worst part of the bear market, if indeed the January top in stocks marked the end of the long bull market.

By one measure, investors know that the S&P 500 had already suffered at least a minimum bear market because in June, the index had declined 25% from its January all-time high. Of course, a 20% decline is widely considered to be the "official" entry into a bear market.

Since June 17, however, the index has rallied.

The question is: Is the bear market over, or is the price climb since June 17 a countertrend rally in a bigger bear market?

Well, if indeed the rally is countertrend, the August 1 U.S. Short Term Update provided a clue on how to possibly ascertain the end of the rally:

Oftentimes, rallies will end with an inter-index non-confirmation, where one or more stock index will fail to confirm the final rally high in the other indexes.

We show you where the various related indexes are right now in relation to each other in our publications. We also show what the Elliott wave model is revealing about the price pattern of the main indexes.

The whole idea is to make sure you're among the 1.5% of investors who are on the sidelines if a bigger bear market has yet to unfold.

The Elliott Wave Theorist, Elliott Wave Financial Forecast and U.S. Short Term Update make up our flagship Financial Forecast Service.

Learn how you can access our latest analysis of the U.S. stock market, as well as bonds, gold, silver and the U.S. dollar, by following the link below.

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In this clip from our Commodity Pro Service, editor Jim Martens highlights a "classic" Elliott-wave setup that can lead to a high-confidence trend change. In Jim's words, "A classic bearish reversal sequence I always mention. I want to see this before I'm confident that the trend has changed." The good news, you can apply this lesson to any market!

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