The decline we saw Friday and which will probably resume today or tomorrow is a wave iv of v of 5. The other alternative is that the top is in and we see a significant drop from here.
In other words we've got one more wave up in the stock markets to moderate new highs, but we are days to weeks from a significant top. A steep and ugly correction should unfold over the summer and into the fall. This is true whether we are in a bear market bounce (which is what I believe) or a new monetery inflation-driven bull market (which I think is bull.)
By significant drop, I mean a real possibility of a retest of the bear market lows of March 2009, even under the optimistic scenario. If we are in a new, fiat money inflation-driven bull market, this will be your chance to dive in and ride the elevator up.
Either way, now is not the time to buy stocks. Complacency is at an all-time high. The S&P is sitting right at its 60% retracement mark, which is a significant Fibonacci ratio in Elliott terms.
Below is a relevant article by Dr. Steve Sjuggerud
Be Careful Now: Record Optimism in Stocks
By Dr. Steve Sjuggerud
Friday, April 16, 2010
"Be fearful when others are greedy, and be greedy when others are fearful."
– Legendary investor Warren Buffett, one of the world's richest men
Now, my friend, is a time to be fearful.
It is the opposite of a year ago. Back then, it was time to be greedy – and we were...
Almost exactly a year ago in DailyWealth, I wrote an extremely bullish story, called "The Great Rally Before the Great Inflation."
At that time, investors were downright scared. But I said stocks would have one of the greatest bull runs in history. What I wrote turned out to be exactly right. But today, things have changed...
I believe we're near the end of that great bull run. Take a look at what I wrote a year ago for perspective... then let me share with you where I think we are now.
From DailyWealth, April 24, 2009:
Stocks could rise dramatically over the next 18 months or so. I believe stocks could have one of the greatest bear market rallies in history.
...The market is telling us the bill for the government spending isn't due yet. Risk is subsiding... And the recession will possibly end sooner than anyone thought.
...I spent the last two issues of my newsletter, True Wealth, recommending speculative positions in stocks good for 12 to 18 months. I expect we'll see rallies of 50% in all the things I've recommended.
...What we're seeing now will turn out to be one of the greatest bear-market rallies in history. I know the bill for the government spending will come due some day. But for now, as long as Bernanke is juicing the economy and keeping interest rates at zero, stocks can run. Take advantage of it.
We took full advantage of that opportunity in my newsletter, staying invested for a very long time – even after the market had soared by record amounts. But times are totally different now...
Since the March 2009 lows, U.S. stocks have nearly doubled. The price of oil is up over 100%. The price of copper is up over 100%. The list goes on.
It's just gotten silly. And NOW investors are ridiculously optimistic... AFTER the 100% gain.
Folks, the time to buy was BEFORE the 100% gain!
In March 2009, investor sentiment was at an extreme of pessimism. THAT was the time to buy.
To put specific numbers on it, "Dumb Money" confidence, as measured by my friend Jason Goepfert of SentimenTrader, hit a low extreme of 21 in March 2009. Today, it sits at 75 – it hasn't been higher than that in years.
After weeks and weeks of a "safe" bull market, investors are downright greedy these days.
Don't fall for it.
To succeed in investing, you must do what Warren Buffett advises: "Be fearful when others are greedy, and be greedy when others are fearful."
It's been years since the "Dumb Money" was greedier than it is today. Trade accordingly.