Anatomy of a Bursting Bubble

Parabolic advances are inherently unsustainable.

Those who are familiar with the Elliott wave model for analyzing and forecasting financial markets know that a main trend takes the form of five waves.

Thus, when the fifth wave is complete, a trend in the opposite direction is set to begin.

Another insight into the Wave Principle is that corrections often end at the terminus of the previous fourth wave of one lesser degree of trend.

The London Stock Exchange Group has been riding along an upward parabolic curve that has generated a 20-fold increase in the stock price since the late 2000s.

This parabolic ts even more precarious given that we can count five waves up since the LSE’s public debut.

Once the rally breaks, an initial decline should pull prices back to a previous fourth wave…implying a near 50% sell-off from today’s levels.

These two updated graphs show exactly how this forecast played out. The cited advance was the end of [a fifth-wave rally], which topped at 7922 on September 11, 2019.

Prices [then] plummeted 39% in [a corrective wave] and bottomed above the previous-fourth wave price.

Today more than one market around the world finds itself in a similar position as the LSE.