Sunday Update: 09 June 2019

What a difference a week can make!  Coming off of 6 consecutive negative weeks, the market roared back with the biggest price advance of 2019!  For the week the C fund was up 4.41%, S fund up 3.77%, I fund up 3.41%, and F fund up 0.35%.

The market was overdue for some sort of recovery rally.  The big question going forward is, will the rally continue?  The answer is yes, BUT…  The rally that began this week is likely to take the C fund to new all-time highs in the short term.  Beyond that, there are 2 very different possibilities for the remainder of 2019 and into 2020…  In this week’s Sunday Update we look at both of those possibilities from a long term and short term perspective.  

In the long term, the last significant market low was the bottom of the real estate crash in 2009.  We began a new Elliott Wave count at that point and have progressed along in a classic V wave pattern.  The question is, is wave IV complete or still forming?  The answer to this question has serious implications for the next 12 months…

Possibility 1

IF wave IV was completed at the December 2018 low, then we are currently in the process of wave V.  Wave V will progress in 5 smaller legs.  This is much easier to visualize than to read so, take a look at the chart below.  If the rally that began this week goes on to significant new highs then we can expect possibility 1 to play out.

In the short term, the chart below is what Possibility 1 looks like.  We would see the C fund continue significantly higher from here; probably throughout the remainder of 2019 and into 2020.  

Possibility 2

IF wave IV was not completed at the December 2018 low then, wave IV is likely carving out an a-b-c-d-e consolidation pattern.  We first talked about this pattern in the 05 May Sunday Update.  If possibility 2 plays out, we have one more major price decline before wave IV is complete.  

IF the current rally begins to peter out after making new all-time highs at d, then possibility 2 is likely playing out.  The key level to watch will be the 03 June low.  If, after hitting point d, the C fund rolls over and closes below the 03 June low, possibility 2 is in play.  Possibility 2 would mean a serious price decline through most of the remainder of 2019 to complete wave IV.  We would want to avoid this loss and be in a position to reallocate to the stock funds at the bottom of wave IV.

Bottom Line:  We are at a critical juncture.  What happens over the next couple of weeks will dictate how the next 12-18 months will play out.  IF the market rolls over at d, and then closes below the 03 June low, 2019 will get ugly in a hurry…  Stay alert!

Have a great week!

Jerry