Have been analyzing the US, China and Japan stock markets for some years already given they are the world number 1, 2 and 3 economy respectively. Their performance in certain perspective will lead to the performance of other markets, not to mention their respective economy. No, not talking those short-term analysis like when market will peak and trough but rather on a long term perspective. In Elliott wave principle, it is SuperCycle or even Grand SuperCycle degree, time frame of multi decades to century.
All the charts are extracted from Yahoo Finance with logarithmic scale being used as due to values over the past decades, using logarithmic scale will allow the pattern to be easily seen.
S&P 500
Elliott wave analysis believes US market is undergoing a Grand SuperCycle wave which started in 1789 and expecting it to end in the 21st Century (this is where we are now). That analysis put 1789 to 1837 as SuperCycle wave ((1)), 1837 too 1857 as SuperCycle wave ((2)) and 1857 to 1928(9) as SuperCycle wave ((3)). Based on that analysis, the wave count is labeled in the above chart. The Great Depression in 1929 should be the SuperCycle wave ((4)) and it lasted from 1929 till 1942. From 1942 till now it is in SuperCycle wave ((5)). The sub-level of the SuperCycle wave ((5)) with Cycle wave (1) ended in 1968, Cycle wave (2) ended in 1974, Cycle wave (3) ended in 1999(2000), Cycle wave (4) ended in 2009 and now it is in Cycle wave (5), the last lap of the SuperCycle wave ((5)) and also Grand SuperCycle wave (((3))) or (((5))). When will it exactly end and due to its sensitivity shall not be discussed here.
The original analysis puts SuperCycle wave ((4)) lasted only from 1929 to 1933, the period of the famous Great Depression. However, in this analysis, it was extended till 1942 based on fundamental perspective.
Each of the SuperCycle or Cycle wave should have a noticeable event(s) and a change of fundamental behind it else there is no rationale in which the market acted in the wave pattern.
1929 is the year in which the Great Depression started, which is also the ending point of a previous wave -- SuperCycle wave ((3)). Though S&P 500 hit the bottom in 1931 but that doesn't mean the fundamental has changed or the wave count has ended. It was widely known that WWII (1939 - 1945) was the turning point for global recovery from the Great Depression and that made it obvious SuperCycle wave ((4)) ended in 1942. After WWII the world underwent global industrialization and technology advancement and that was the fundamental behind the surge to Cycle wave (3). This wave ended in 1999(2000) when dotcom bubble burst occurred, another fundamental change and that leads to Cycle wave (4). This wave lasted till 2009 in which several of economic crisis (dotcom bubble, SARS, 2008 GFC) all occurring. The changed in fundamental which started Cycle wave (5) from 2009 till now is none other than low interest rate and flooding the financial system will printed money (QE1, QE2, QE3). For every cause there will be a consequence and similarly behind every consequence there will be a cause. Since excessive liquidity started Cycle wave (5), it will be of no surprise this shall be the reason to end it.
The question now is not when the present uptrend will end but rather what's going to happen next, that is called long term. The EW analysis put it as an end to a Grand SuperCycle wave and what comes next will be a Grand SuperCycle corrective wave, the 2nd or 4th wave of the Grand SuperCycle. Grand SuperCycle wave is measured in term of century duration. To have a century of correction must be accompanied with a drastic change in fundamental. Majority might not believe that is possible but nothing is impossible. It might not be due to a single factor that span the whole duration but a chain or series of factors. In fact, there isn't shortage of potential problems that could trigger it. US economy being overtaken as world number 1, US technology cutting edge is no longer in the lead, the whole world will transform into 3 or 4 regional pillars with each having a lead as compared to now just US taking the lead, deflation just like the notorious lost decade of Japan which started in 1989 and till today after 3 decades still ongoing, bond bubble burst, government debt issue (how many times have the US Government raise the debt ceiling since 2009?) and so on. Corrective wave doesn't mean US market will free fall, it could just range bound in an extended horizontal time frame, think of a triangle pattern.
Nikkei 225
The Japanese market, Nikkei 225, doesn't have a lengthy data (from Yahoo Finance) compared to S&P 500. Yahoo Finance only started the recording in 1965 and from internet, the earliest which could be found in the internet is from 1949. Obviously, it is difficult to analyze in the Grand SuperCycle degree like US market but looking at SuperCycle degree is fairly good enough since it is in term of multi-decade time frame. The relatively small range of data (compared to US market) might leave it open to many possibility in wave count but if looking at critical events it is possible to lock in to a specific wave count with high accuracy.
Japan lost WWII in 1945 and put it in a nation rebuilding path thereafter, becoming a super power nation and rose to world number 2 economy until 2002 when China overtook it. That itself is a change in fundamental that accounted for Nikkei 225 on an uptrend till 1989. In the chart above, 1989 is the end of a Primary wave 5, also end of Cycle wave (5) and possible end of either SuperCycle wave ((1)) or ((3)). It could be SuperCycle wave ((5)) but to label that meaning the correction after that shall be a Grand SuperCycle correction which could last a century, a probable one but with lesser possibility than other scenarios. Time will tell if that probability will become reality. Thus, at this moment, just focus on the higher possibility wave count as shown in the chart above.
The corrective wave which started in 1989 looks ended in 2009 but by doing so, this will give a lopsided correction pattern from 1989 to 2009. However, if a 5-wave diagonal pattern of Primary degree is being used, the pattern is more balance. That will make the trough in 2009 just the Cycle wave (A) of the corrective wave. The rebound after that till now is none other than Cycle wave (B). After wave (B) shall be the Cycle wave (C), the end of either SuperCycle wave ((2)) or ((4)). Looking from time frame perspective, Cycle wave (A) took 20 years (1989 to 2009), Cycle wave (B) still ongoing is into its 12th year and should expect probably another 1 to 2 decade for Cycle wave (C) to complete, ending the so-called lost decade. The whole correction would occupy at least 50 years, very much inline with the time frame guideline of EW. Just for the reference, if the correction which started in 1989 is a Grand SuperCycle degree, a triangle pattern in which only pivot A and B have been recorded so far and with C, D and E to go, reaching a century time frame is not impossible given now it is into its 32nd year of correction. So for those who still think US market after present uptrend cannot go into century of correction, better think twice as Japan's lost decade could be one that US will enter into.
The outlook might look dim for Nikkei 225 given the whole corrective pattern yet to run its full course especially if it is a Grand SuperCycle one. However, if the corrective wave is just a SuperCycle degree and comparing to US which in the longer term will enter a Grand SuperCycle correction, the outlook is definitely brighter than US. Should this corrective wave be a SuperCycle degree in which maybe another 2 to 3 more decades to go, the next wave shall be an impulsive wave, SuperCycle wave ((3)) or ((5)), a fierce rally which spans across multi-decade. US SuperCycle wave ((5)) which started in 1942 is into its 79th year today and this is the type of duration we are talking about for the Nikkei 225 impulsive wave.
For a change in wave there must be a change in fundamental. The impulsive wave for Nikkei 225 will therefore signal the end of the lost decade, a deflation issue they faced for multi-decade, an annual marginal economy growth issue they faced for multi-decade and not to mention there shall be a theme (or fundamental) that will drive the impulsive wave.
SSI
There is even lesser data to look at for the Shanghai index, SSI given Yahoo Finance only has data from 1997. This makes SSI even more difficult to analyze than Nikkei 225. Analyze from Gand SuperCycle perspective is impossible, SuperCycle degree would have lot of possibility but luckily for the 2008 GFC and some noticeable fundamental change in China economy, this has narrowed down the various possibility to give a highly probable one. The peak in 2007 was the Primary wave 5, Cycle wave (5) of either SuperCycle wave ((1)) or ((3)). Thereafter, SSI undergoes an either SuperCycle wave ((2)) or ((4)) correction which lasted till today and still ongoing. This could use fundamental reason to support that as after the 2008 GFC, China decided to reform their economic model, transforming from an import/export relying model to one that focus on consumption and services model. The restructuring is still ongoing and that bode well with it is still now in SuperCycle correction. Moreover, in 2013, China decided to launch the Belt and Road Initiative (BRI), formerly known as One Belt One Road (OBOR) and planning to complete in 2049. While this could considered as a component of its reform consumption and services based economic model, this could also be a triggering factor of fundamental change to end the SuperCycle correction which started in 2007, which is today into its 14th year.
In term of wave count, the 2009 trough is the Primary wave A of the Cycle wave (A) or (W) of the SuperCycle correction. The Cycle wave (A) or (W) ended in 2013 and the upward movement till 2015 is the Cycle wave (B) or (X). From there onward, SSI is trying to complete the Cycle wave (C) of the SuperCycle correction. From the look of it, SSI presently could be in the Primary wave B of Cycle wave (C) making it to require another fall to complete the Cycle wave (C) and eventually the whole SuperCycle correction. Have used the double-three notation of (W)-(X)-(Y) to cater for possible a complex pattern like triangle structure for the stretch after the peak in 2015.
After the whole SuperCycle correction, SSI shall be in either SuperCycle wave ((3)) or ((5)), a fierce uptrend movement for the next few decades. A change in wave must be accompanied by change in fundamental and that could be potentially due to China overtakes US as world number 1 economy, China technology leapfrog that of US (in fact China is leading the 5G race now), China becoming one of the regional pillar in the new transform world, and so on.
Short-term wise, the SSI doesn't look bright but in the longer term, it is on the brighter side compare to US or even Japan.
Summary
Countries world wide are linked economically nowadays and with financial market being an forward indicator of the nation economy, closely examine the longer term of financial market could easily provide some clues of what's going to happen next. Putting aside Japan and just looking at both US and China and their respective financial market, there are some important discoveries.
The EW analysis pointing that US after present uptrend shall enter into a Grand SuperCycle correction in century time frame and China after present correction shall enter into a SuperCycle impulse wave. This is a convergence given the factors that potentially trigger that for both the nations are opposite of each other. US world number 1 economy now being replaced by China, US leading in the technology field being dislodged by China, US being a leader in the international stage being demoted to just a regional pillar role while China promoted to a regional pillar role.
So what's with Japan ? If examines closely, Japan market is trying to be in sync with China market. The extended lost decades could be a sign that it is trying to finally in sync with China, meaning going forward, both nations will be in the impulsive wave phase together. In fact, not just Japan, majority of Asian markets including Singapore look more in sync to China than to the West. This could be an important cue that the world is going to transform into 3 or 4 regional pillars with US being a regional pillar for the North and South America, Europe will be another region with one of the strongest economic nation as the pillar, China being the pillar for Asia. The 4th pillar could be from Africa or South East Asia. This regional concept is not something new as was first mentioned in the 2019 edition of the Recap and Looking Ahead series.
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