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Bulls Vs. Bears: Detailed Charts Projecting the Long-Term Outlooks


In the recent past, I've discussed the importance of the current pivot zone, but these charts drive the point home and discuss what to look for.

It goes without saying that the market is a dynamic environment. In order to keep up, we have to recognize when outlooks are changing, and then actively change with the changes.

Along those lines, Minyanville's founder, Todd Harrison, has put together an excellent list of 10 Trading Commandments. The second item on the list is "discipline trumps conviction." To paraphrase, he espouses that no matter how strongly we feel about a given position, we must defer to the principles of discipline and realize we are not "smarter than the market."

I wholeheartedly agree with that philosophy. Humans tend to cling vehemently to their belief systems, and while this can be an admirable trait in everyday life, it can make for difficulties when trading. Sometimes our beliefs lead us to condemn or praise the market's movements, as we assign judgments of right and wrong to the price action using our own arbitrary versions of "market morality" (i.e.- "It's just wrong for the market to keep going up here!").

The market has no morality (much like some of its big players!), and ultimately it's going to do whatever it's going to do, regardless of how strongly we believe in what it "should" do. It's somewhat like a wild animal -- if you get attacked by a wolf, the wolf isn't morally wrong for trying to eat you, it's just doing its thing.

With that in mind, in this article, I'm going to outline my interpretation of both the bull and bear cases, and what to watch for, as defined through Elliott Wave analysis of the long-term charts.

I've mentioned this next subject a few times over the past couple months: the market is still in a long-term inflection zone, due to the fact that we're quite close to the price highs of two very important long-term tops (2000 and 2007). Most interestingly, the pattern which has now formed could be interpreted in two fashions, and those interpretations are essentially diametrically opposed. Sometimes, the highest-probability interpretations will point the same direction, but in this instance, they do not. Thus the pattern is either a wind-up to another sustained launch, or an ending pattern, and I will explain this dichotomy in more detail below.

One sees this type of pattern with some frequency across all time frames, and the nice thing about this setup is that it will be reasonably clear to interpret as it begins breaking.

If I forget everything I think I know about the world's problems and just study the charts, the most obvious wave count is the bullish one. During 2008, I formed the opinion that we would experience a two-stage crash. I anticipated a cyclical bull market would follow the 2009 bottom, but I expected an "eye of the hurricane" effect. That bias stuck with me and colored my interpretation of the charts through roughly mid-2012, at which point the market's price patterns began challenging my view.

(If you're of the bearish persuasion, you'll probably find my Survival Guide for Bears in a Bull's World quite entertaining, and perhaps even a bit enlightening, since it's written from a journey of personal experience.)

And now, at this point, the pattern has evolved into one that suggests the "second stage" of any pending crisis could be forestalled for many years. It all hinges on the current inflection point.
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