SPX and the 3 Bears - Parable or Parabola?

I recently referred to the rounded tops and parabolic bear markets in 2000-2002 and 2007-2009. I mentioned that the 2nd bear market took just over half the time of the first one and fell further percentage-wise. Similar could be said for the last 2 bull markets in which price-time has increased beyond linear. Perhaps the 15-year megaphone pattern represents the potential exponential pattern of bull and bear markets best and perhaps monetary-induced bubbles explain it best. Regardless, the bull market of 1982-2000 had a pretty steep ascent that was far exceeded by the 2002-2007 bull market which was likewise far exceeded by the 2009-2015 bull market. And, the bear markets have done the same. Is it unreasonable to think the 6th bull/bear market will do the same?

In the 16-year SPX chart below, you will see dashed blue lines representing the ascents of the last 3 bull markets from start to finish with each succeeding bull market having a thicker line and transposed on the subsequent bull market. You will also see the parabolic curve for the 2000-2002 bear market represented by a solid blue curve. I transposed that curve on the 2007-2009 bear market and you can easily identify that the 2nd bear market requires a steeper descent represented by a solid red curve. But, as I alluded to last week, the 2007-2009 bear market curve actually follows the same parabolic curve as the preceding bear market except it starts almost exactly halfway down the curve time-wise (less price-wise since the curve steepens with time). These indicators demonstrate visually what I described textually in the first paragraph.

So, let's say you are willing to entertain the idea that (1) there is an exponential/parabolic/megaphone pattern for the last 20-40 years as a whole and within each bull/bear market, (2)  it will continue into the near future and (3) the 2009-2015 bull market is complete. Then, what projections do we get?

Well, the same 16-year SPX chart has curves emanating from the recent SPX highs. The solid blue and red curves were transposed form the 2000  and 2007 bear markets respectively. The thin black curve represents the same parabolic curve as the previous 2 bear markets but approximately half-way down the time curve of the 2007-2009 bear market meaning it is exponentially steeper. There are 2 red and 2 black curves, because I wanted to see what happened if I placed the curve at the May 2135 and July 2133 tops to see what would happen. I did the same exercise with the 2000 bear market, but in the end the true price high in March 2000 seemed best as many other markets confirmed. It is not as clear for May 2015 since Nasdaq, Dow/SPX and Russell 2000 markets topped in between May and July, but I still think May 2015 is best to use.

Due to the 16-year weekly SPX chart being zoomed out so far, the 2015-2016 parabolic curves are not clear enough to use for projections. So, I did my best to make sure I placed the curves accurately, I added some long-term trend lines and zoomed in with a 2-year chart. That chart shows that the 2000-2002 bear market curve actually matches the start of the bear market best using May 2015 as the top, but the fact that the other curves are pierced does not eliminate them. Firstly, the curves are not mathematically drawn or accurate down to the point. Secondly, you'll notice parts of the other bear markets pierce the curve including the beginning of the 2000 bear market. Thirdly, once the bear market is complete and the picture is a little more filled, the piercing may look pretty minor if price generally follows the curve.

Price has already fallen well below all of the curves with plenty of room to rally up to them, so they should all be considered reasonable possibilities. However, my exponential parabolic theory favors the thin black curve starting in May 2015. That crosses 2010ish next week and 1980-1990 in mid-September when many people including myself are projecting a potential rally high. If I use my previous conjecture that the current bear market will initially hit SPX 725 by March 2016 based on a progression of 54%-->60%-->66% in half the time of 2007-2009 which was half the time of 2000-2002, that is actually steeper than what my parabolic curve produced, so to be conservative and perhaps more accurate I'll use the parabolas. It looks like 667 could be retested by summer or fall 2016 though if the parabolic curve holds just in time for the elections. :0

Assuming the thin black curve contains most price action between now and mid-September, that means SPX could rally a bit more in the next week but it essentially only has 2 choices: (1) go mostly sideways for 2-4 weeks before collapsing or (2) collapse in the next few days and then rally back up as high as 1990-2000 in mid-September before collapsing again. Both seem possible to me, but my EW count, my candle study, my exponential parabola theory, the surprise nature of it and ideal timing with a potential rate hike has me really leaning toward option 2.

How far will SPX drop if option 2 is chosen short-term? Well, I have been favoring 1828ish while mentioning 1735 and 1670-1700. On my zoomed-in chart, you can see some yellow dashed lines. The bottom one represents the bull market uptrend line from 667 through 1075. It crosses 1685ish next week. The other dashed yellow lines are parallel trend lines that passed through multiple other bull market pivot areas perhaps denoting channels of some type. The magenta dashed line represents the trend line I mentioned recently that starts at the 2002 bear market low of SPX 768 and travels through the year 2008 3of3 gaps touching the 1371 high in year 2011 and the highs in year 2012 and low in year 2013. It crosses 1685ish next week as well. Hmmm. Convergence?

Likewise, I mentioned that my count from May 2015 has wave v of 3 of C = wave i+iii which is not just a random relationship, and if 5ofC=1+3, then it will end at 1700 assuming 1990 is the wave 4 high. Then, SPX could have a massive 2-3 week rally to relieve massively oversold conditions without getting above current levels in hopes the Fed will delay a rate hike. And, I remember the stock prints of huge companies being 15-20% down for a couple minutes on Monday morning, but I just don't know how quickly we'll get there...now or October. I just can't help but think that this bear market will surprise us somehow and that perhaps my parabola theory is the key and perhaps once volatility sets in for too long people may run for the exits a lot quicker than they did in 2000 and 2007 and not enter the door again as quickly as they did in 2003 and 2009 especially if the multi-decade rate cycle is over and the world is in a more coordinated recession including China this time. I think the Fed is damned if you do, damned if you don't, at this juncture.

Some other tidbits...today was an SOS day. Remember in my candle analysis that 3 of the 8 examples, all of which made lower lows, finished with an additional 8-9 day drop. 3 of 8 also rallied above the previous pivot/candle like SPX did today breaking 1954/1971, and 2 of those 3 were ones that then had 8-9 day downtrends perhaps because they had relieved the oversold conditions more. Another 8-9 day drop does not seem to match my cycle expectation and it seems so unlikely given the technical records set by the first drop. So, unfortunately, I think if we see 1700ish in this drop, it will still happen in 1-3 days perhaps bouncing at 1825-1850 in wave i of 5. It's going to be a tough call once SPX gets down below 1867 as to whether or not the next bounce can hold. To be continued. Good fortune.