I am a big fan of Elliott Waves. The Elliott Wave Theory basically works on the presumption that people will act in a similar pattern during similar circumstances. An easy example of this is a car accident. We know that traffic slows down if there is an accident on the side of the road. People (including myself) like to slow down to see what happened. Since we behave in similar patterns during similar circumstances, there is a good chance that if I see a car accident on my to work, I will slow down to see what happened.
The Elliott Wave Theory can be applied to the stock market as well. Below is a chart comparing the period of 1920-1940 vs 1990-2020. Please note this is a Dow vs NASDAQ chart. The speculation we saw in the late 1920s was almost identical to the technology speculation we had in the late 1990s. While we are comparing two different indices, the emotion was the same.
Up to 2009, the markets have behaved as the Elliott Wave Theory would dictate. If the theory continues to hold true, then we can forecast as follows:
While the media loves to compare now to the period of 1920 to 1940, we do need to remember the US government is taking different steps today. Tax rates rose to much higher levels – and they rose too early – before the economy was strong enough to support it. So while the charts have been similar to this point, don’t follow them blindly.