Could the Dow Industrials be hitting a Grand Supercycle Top?

Spinning Top i

It is possible that the Dow Industrials is currently hitting a Grand Supercycle Top. As you can see based on a historic stock market chart from 1900 – 2013 below, Aug 2013 marks the high of a series of tops of different degrees – all the way up to a Grand Super Cycle Top. Our Wave Count has a long extended wave 3 from 1942-2008.

The benefits of this Wave count is that:

1. Cycle V (2008-2013) is approximately equal to Cycle Wave I (1932-1937) in duration – 4.5yrs.

2. Cycle Wave II (1937-1942) and Primary Wave 2s (1966-1974) are flat corrections, and this alternates with Cycle Wave IV (2007-2008) and Primary Wave 4 (2000-2003), which are sharp corrections. Magnitudes of the corrections are also in proportion.

Cycle Wave II: – 52%         Cycle Wave IV: -54%

Primary Wave 2: – 42%     Primary Wave  4 : -38%    (but note that the S&P 500 dropped 51% in this time)

3. The Wave from 1974- 2000 can be counted as the third wave (Primary) of a third (Cycle) with an extended 5th (1990-2000). This is the strongest advance in price terms and the entire Wave from 1974-2000 culminates with the Nasdaq Bubble blowoff top in 2000.

4. The Crash of 1987 took place right after the centre of the entire wave formulation from 1932-2013 ie. third (Minor) of a third (Primary) of a  third (Cycle). This is fits the description of third Waves which said to be the most volatile point of strength in any Wave sequence.

5. Since Primary Wave 3 of 3 (1974-2000) topped, the breadth of the rallies have been weaker and less dynamic which is what we would expect of 5th Waves. It also fits with the view that the stock market does not reach maximum acceleration at a peak, which is what we find in the tops of 2007 and 2013, are where both the price action, sentiment, and fundamentals are not as strong as the previous advance.

INDU 1900-2013 Grand Supercycle Top Count 2 i

There is another Alternative Wave Count below that labels the entire move from 1974 as Cycle Wave 5. The labeling here has a certain symmetry about Cycle Wave 5. Wave 3 is best labelled as series of 3rd wave extensions with the strongest, most powerful centre at Minor Wave iii which lasted from Nov 1994- Mar 1997, where the Dow Industrials rose a whopping 92%, without even undergoing a 10% correction.

Since Minute Wave iii peaked we have been faced with a series of sharp Wave 4 corrections of rising degree and magnitude.

Minute iv , 1997 – Start of Asia Crisis: -10%

Minor 4, 1998 – Collapse of LTCM: -20%

Intermediate iv, 2000-2003 – Bursting of Internet Bubble: -38%

Primary 4, 2007-2008 – US Housing Market Collapse, Global Financial Crisis: -54%

Another elegant property of this wave count is that the rule of alternation within the impulse Cycle Wave 5 is adhered to. All Wave 4/iv corrections are zigzags and all Wave 2/ii corrections from Primary degree down to Minute degree are flats or decreasing size and magnitude.

The big problem with this Wave Count though is that Cycle Wave I far shorter in duration that either Cycle Wave III or V.

INDU 1900-2013

No matter which of the two Grand Supercycle Top Wave counts we use the rally from 2009-2013 is a 5th Wave up either of Cycle or Primary degree.

Now a close up look at the Dow Industrials 5 year chart below is quite revealing. We can see that tops of Minor, Intermediate, Primary, and Cycle were all made in Aug 2013.

In terms of form, of note is that Intermediate Wave v (Purple) is extended and in turn consists on an extended 5th wave of minor degree. This 5th wave of minor degree (Orange) has a form where wave 3 consists of extended thirds (Red and Pink).

Further in terms of duration Intermediate Wave v lasted 2 years in duration, which is the around the same combined duration as waves i-iii.

 

So, in conclusion we can see clear Wave forms for tops of all degrees: Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, etc  forming on Aug 2013.

INDU 08-13 wave 5 labelling

Under our Grand Supercycle Top wave count, what is most interesting to note is that the Super Cycle Wave (A) has barely begun! If you thought Cycle wave 4 from 2007-2008 was bad enough, it should pale in comparison to what we are about to experience.

When Supercycle Wave (III) topped in 1929, the Cycle Wave A that followed it was the largest crash in stock market history that caused the Dow to drop 48% in 2 months! If Supercycle Wave (A) follows a similar pattern we can expect to see unprecedented volatility and 50-60% of the value of the Dow wiped out within 2-3 months, followed by a countertrend rally, Supercycle Wave (B).

As to the level where Supercycle Wave (C) will bottom, it is still early to say but in theory any correction should find support in wave 4 of one lesser degree. Since we are looking at a Grand Supercycle Top in this case Wave 4 is Supercycle Wave (IV) which lasted from 1929 – 1932 and has a price level of between 41 – 381.