Sunday, March 31, 2013

The First Crack in the Dam (of Confidence)

The bailout drama in Cyprus had created an atmosphere of uneasiness and suspense in Europe for the last two weeks. The significance of the events has been dismissed by most people, even economists and political pundits, all pointing out the fact that because Cyprus makes up just 0.2% of the European Union's GDP, that the damage to the larger Eurozone would be minimal. However, the economy is global with a lot of working parts integrated together (and has been that way since the 1400s, but society is more connected now than back then), meaning that when one part sustains damage or goes down, a chain reaction can happen.

As will be demonstrated here, the drama in Cyprus is much more serious than many would think. What happens in Cyprus affects the European Union, and eventually, the entire Western World. The next phase of the "Crisis of the Western World" is approaching. The drama in Cyprus started when the two largest Cypriot banks became insolvent and needed a 10 billion euro bailout.

The stage for the Cypriot financial crisis was set with excessive exposure to the Greek debt crisis (through investment in Greek treasury bonds, which have been considered junk bonds) and the downgrading of the Cyprus economy to junk status. Moody's had downgraded the credit rating of Cyprus to junk status on March 2012, citing the need for the Cyprus government to inject more capital into the banks. In June 2012, Fitch downgraded Cyprus bonds to BB+, no longer qualifying as investment grade as far as acceptance as collateral by the ECB is concerned. A short time later, Cyprus requested a bailout from the European Union's Eurpean Financial Stability Facility or European Stability Mechanism.

The drama started on March 16, 2013 when the European Union agreed to a 10 billion euro deal with Cyprus. In the first action of its kind, the part of the terms of the bailout is a so-called "wealth tax" that takes up to 10% of deposits for all domestic bank accounts.

1 -- News of the "wealth tax" sparked a mini-bank run in which people attempted to pull their money out of the banks as fast as they can. Many local ATMs ran out of cash in a matter of hours. With the sudden scarcity of cash in Cyprus due to the bank closures, many businesses have stopped accepting credit card payments.

2 -- The Cypriot government rejected the terms of the bailout on March 19, 2013. In the aftermath of the failed vote, The Cypriot government declared a bank holiday that would eventually last over a week. When the banks re-opened on March 28, 2013, capital controls were were already in place setting limits on how much money can be withdrawn along with the deployment of police in the streets amid the fears of a bank run.

3 -- When the bank holiday ended in Cyprus, the damage was already done. Many businesses and aging retirees saw their savings wiped out by the "wealth tax", losing as much as 80% of their life savings overnight.

Many politicians, economists, financial analysts, and news pundits have shrugged off the drama in Cyprus as "not a big deal".  The significance of the events in Cyprus is not recognized by most people. Confidence is an ironic thing --- it takes decades to build, but it takes only a few days to tear it down. Confidence is a very important part of keeping the banks fully functional. With the "wealth tax" genie now out of the bottle, the first crack in the dam (of confidence) has formed. The "wealth tax" has already caused some real damage to people in Cyprus and it has also caused many people in southern Europe to question whether their savings accounts and checking accounts are truly safe.

When people no longer feel that the money they have in the banks is safe, they become more likely to pull it all out. There is a reason why people stuffed their money under their matress in the 1930s during and shortly after the Great Depression (hint -- over 9000 banks imploded from 1929 to 1932).
There are very strong indications that the people at the top of the pyramid are oblivious to the cracks in the dam of confidence (see above). When a dam develops a crack, it becomes weakened and the cracks get larger over time. Eventually, the entire dam gives way and bursts.

There are already indications of more cracks in the dam of confidence that could form in the future:

1 -- Banks in Slovenia are in need of billions of euros of fresh capital and are struggling with bad loans that equal a fifth of the country's economic output.

2 -- There is already discussion of depositor haircut provisions for systemically important banks in Canada as part of the 2013 budget.

The first crack in the dam of confidence has formed. Over time, the cracks are expected to get larger, weakening the dam over time. When the dam bursting event takes place, the result is a full scale bank run throughout the Western World. The dam bursting event is most likely to take place in 2015 or 2016 and will start in Europe before spilling into the United States and Canada. The "tax wealth" genie is out of the bottle and it is going to be very difficult for people in high places to put it back in.

Sunday, March 10, 2013

The Mother of All Bubbles

It is very obvious that the credit bubble is still expanding even as it already exceeds the South Sea and Mississippi bubbles in size, magnitude, and duration. The credit bubble that is in play throughout the Western World (not just the United States) is literally the mother of all bubbles. The credit bubble did not burst during the "Panic of 2008", in fact, the bubble is over 40% larger than it was in 2007.

The credit bubble formed in 1974, at the start of Cycle wave V (1974 - 2000) up and continued to expand in size and area of influence. As we approached the peak of Grand Supercycle wave [III] (1784 - 2000), a series of smaller bubbles started to form. With a very long topping process in play, we have seen a series of smaller bubbles form and pop in succession even as the mother of all bubbles, the credit bubble, continues to relentlessly expand.

Here is a long term chart of the DJIA from 1997 - 2021 illustrating the topping process and the bubbles:

As the chart illustrates, the first of the smaller bubbles to form and go parabolic was the dot com bubble, also known as the tech bubble. The Nasdaq went parabolic in 1997 and shot up to a peak of 5132. More information on the dot com bubble is here. The bubble popped in 2000, ushering in the first stage of the Grand Supercycle degree bear market and associated major depression in the Western World. The DJIA and S&P 500 also peaked in terms of gold and PPI at the peak of the dot com bubble, and the peak has not been exceeded since. The aftermath of the bursting of the dot com bubble unfolded during Primary wave [A] of Cycle wave a and lasted roughly 34 months. The Nasdaq reached a low of 1108 on October 2002.

In 2003, The Bush 43 Administration and the Federal Reserve attempted to re-inflate the dot com bubble. With the credit bubble relentlessly expanding, the housing bubble started to go parabolic with the government taking part in the bubble. George W. Bush, during the 2003 state of the union address, said that "everyone should be able to afford a house". The parabolic phase of the housing bubble unfolded during Primary wave [B] of Cycle wave a in which the DJIA soared to over 14000 and the S&P 500 hit 1576. While the DJIA reached new highs in nominal terms (DJIA/$ ratio), it remained well below the 2000 high in real terms (DJIA/gold ratio and the DJIA/PPI ratio). The housing bubble popped during the 5 year rally. The popping of the housing bubble, and the sub-prime mortgage crisis that followed, would play a strong role in ushering in the "Panic of 2008", which unfolded during Primary wave [C] of Cycle wave a.

In 2009, the Obama Administration and the Federal Reserve started its attempt to re-inflate the housing bubble. The Obama Administration has thrown more than $7 trillion in cheap money into the economy, and the Federal Reserve has done a series of QE programs since March 2009. The money has pretty much stayed at the top of the pyramid, pumping up equity and commodity markets as well as causing the college bubble, the social media bubble, the Apple bubble, and the Google bubble to go parabolic. The current reflationary period, Primary wave [A] of Cycle wave b, is unfolding as a double zigzag with a projected peak in June 2014.

The rally off the March 2009 low is corrective and the rally has been unfolding with declining volume, with volume spikes during the Flash Crash and the large pullback in August 2011. The chart illustrates the bear market rally:

In bull markets, volume rises as the market rises, and falls during pullbacks. Volume is a very important momentum indicator. Even as the DJIA rose to new all-time highs in nominal terms, the DJIA is still far below the 2000 and 2007 peaks in real terms with the DJIA/gold ratio at 45.9 in 2000, ~16 in 2000 and it is at ~8 now.

Markets are expected to pull back for a few months, then soar again as the final stage of the Apple Bubble unfolds from July 2013 to June 2014. The chart of Apple illustrates the final stage of the bubble:

Apple's stock should fall to a low of $350 a share in July 2013. The structure is clearly corrective, unfolding as either a double zigzag or a triple zigzag. The final stage of the Apple Bubble is expected to unfold as an epic melt-up in the company's stock. Apple is a global corporate bellwether in the same way that the South Sea Company was a global corporate bellwether in the 1700s, so the influence of the bubble will be global. The melt-up is expected to have a very powerful influence, with many tech and social media companies taken along for the ride. The implication of the epic melt-up is a very powerful rally in equity markets with the DJIA hitting 17500 and the S&P 500 hitting 1900 at the peak of the Apple Bubble. It is worth noting that social media has morphed into a full blown bubble of its own, and Google has also turned into a bubble as well.

The Apple Bubble is expected to burst around June 2014 -- at a Kondratieff Cycle high point. The bursting of the Apple Bubble is expected to trigger the bursting of the Goggle bubble and the social media bubble, and the ripple effect will rip the job market apart throughout the Western World. The bursting of the Apple Bubble will usher in Primary wave [C] of Cycle wave w (2000 - 2019) in the Nasdaq and Primary wave [B] of Cycle wave b (2009 - 2021) in the DJIA and the S&P 500.

With a lot of three wave structures in the Nasdaq since the March 2009, the rally from the March 2009 low in the Nasdaq is very likely unfolding as an ending diagonal, as this chart shows:

The longer term chart of the Nasdaq shows a Cycle degree zigzag in progress, likely the first part of Supercycle wave (a) (2000 - 2042) in the index, which should unfold as a double zigzag:

The Nasdaq from 2000 clearly builds the case for the Apple bubble, the Google bubble, and the social media bubble bursting in 2014, while the college/student loan bubble and the credit bubble continues to expand all the way to the end of the "extend and pretend" phase of "The Great Deflation".

The mother of bubbles, the credit bubble, will continue to expand all the way to the end of Cycle wave b (2009 - 2021). Rising interest rates, combined with the continued addiction for debt throughout the Western World, will eventually cause the credit bubble to burst, which would also trigger the bursting of the college / student loan bubble. Just before the bursting occurs, the DJIA will reach 18750 and the S&P 500 will reach 2100. The bursting of the credit bubble will usher in the third phase of "The Great Deflation", Cycle wave c (2021 - 2042) of Supercycle wave (a) (2000 - 2042) in which a deflationary collapse of the economy throughout the Western World unfolds in full force.

Tuesday, February 12, 2013

The Road to Plutocracy Accelerates

With all eyes on the state of the union speech by President Obama with the speech focused mostly on the economy, more evidence continues to emerge that the gap between the top 1% and the bottom 99% continues to widen at a very fast clip. The internals continue to be consistent with being in the second phase of "The Great Deflation".

The real story of President Obama's economic policy is gold, which was at around $600 an ounce at the start of the Obama Administration Period, which then rose to a high of $1921 an ounce before entering a long consolidation period. Gold is getting ready to explode higher, poised to go to $2000 an ounce and beyond in the very near future. The intermediate term chart of gold illustrates where we are with a leading diagonal in progress:

Gold has been recognized as money for thousands of years, going all the way back to past civilizations such as the Roman Empire, the Babylonian Empire, and the Assyrian Empire. There is a reason why gold has been on a tear on President Obama's watch : trillions of dollars of economic stimulus that has been pumped into the system since 2009, starting with the $787 billion stimulus package passed in February 2009, has devalued the dollar, therefore resulting in chronic inflation. In the aftermath of the state of the union speech, platinum shot up over $10 an ounce to over $1700 an ounce and palladium shot up over $2 an ounce to over $770 an ounce, a 17 month high.

Trillions of dollars of economic stimulus could not stop the nominal GDP from going into the red with a 0.1 % annual rate of decline in nominal GDP (GDP / $ ratio) during the last quarter of 2012. We are in the declining portion of the business cycle, with the low point to be reached in the 2016 - 2017 time frame. Factoring in the actual rate of inflation as per, the real GDP (GDP / actual CPI ratio) declined at a rate of around 5.1% a year in fourth quarter 2012, and production of goods and services in the United States has fallen below 1982 levels.

For all the economic stimulus pumped into the system during the Obama Administration Period, the money has pretty much stayed at the top of the pyramid. Last year (see this post), the top 1% had captured 93% of nominal GDP growth since the false recovery (that does not exist in real terms) started in late 2009. As evidence that the top 1% continues to pull away from the bottom 99%, the portion of the nominal GDP growth that has been captured by the top 1% since the start of the false recovery is now at 121%. Not only has the road to plutocracy continued during the Obama Administration Period, but the process is accelerating. The rate that the gap between the rich and the poor is widening in the United States is accelerating as evidenced by the top 1% capturing 121% of nominal GDP gains. This means that the middle class is on the road to extinction with 35 statistics to prove the point.

Inflation will continue to reign during the second phase of "The Great Deflation" with the second phase, Cycle wave b or x within Supercycle wave (a) down (2000 - 2042) to continue until 2021. While the second phase is in play, inflation will continue to accelerate. Look for President Obama to push for more economic stimulus in the future with all the stops pulled out starting in 2014, especially as the nominal GDP and the job market goes farther into the red. This is very bullish for precious metals, especially gold. Gold is in the midst of Cycle wave V up (2001 - 2021) of a larger supercycle degree advance. It is quite possible that President Obama will pull all the stops out in terms of pumping economic stimulus into the system in the 2014 state of the union address, vowing to take all necessary steps to prop up the economy --- this could easily correspond to the center of Cycle wave V up in gold in which a powerful "third of a third" event takes place in which gold shoots up as much as $400 an ounce in a single day.

Chronic inflation is also expected to result in rising unemployment, now at 23% (according to as businesses and corporations take steps to remain profitable. With a large degree bear market unfolding, the mantra for businesses and corporations continues to be "limits and conservation", and the latest development is the use of robots to perform tasks in the place of human workers. As robots continue to go down in price and become more advanced, it will be more and more intuitive for businesses and corporations to replace human workers with robots in a corporate culture dominated by a "limits and conservation" mentality. Science fiction, as depicted in Phantom 2040, I Robot, and Borderlands 2, which all feature the use of robots in the corporate work force, is fast becoming science fact. The replacement of human workers with robots will also have the effect of widening the gap between the top 1% and the bottom 99%.

 A plutocracy is still in the forecast for the United States, starting in 2042 and continuing until 2076, consistent with the expected character of Supercycle wave (b) of Grand Supercycle wave [IV] in terms of economic internals in which only a very small cross section of the populace takes part in the return to prosperity after "The Great Deflation" climaxes in 2042.

Friday, December 28, 2012

The Fall of Obama

All the indicators are now pointing to President Obama approaching a peak of monumental scale with a massive decline (in the "Obama brand") to follow in the aftermath. The peak appears to be imminent if not already upon us. The DJIA, the S&P 500, and the Wilshire 5000 are also indicating a peak of monumental size is in the making as well as Primary wave [A] up (2009 - 2012) has run its course with a massive wedge collapse in progress.

Obama's approval rating is currently at 54% (and peaking), having rose from 48% just before the 2012 elections, but still forming a lower high relative to the May 2011 peak in which Obama's approval rating reached a high of 61%. The lower high is in play in spite of the markets putting in a higher high relative to May 2011.

A few days ago, President Obama was named "Person of the Year" on Time Magazine and appeared on the magazine cover. The magazine cover picture can be seen here. The Magazine Cover Indicator is a peaking signal --- it is an indication that the "Obama brand" is approaching a peak of massive scale and a multi-year decline is imminent.

Here is a chart of the DJIA with the Magazine Cover Indicator event labelled:

Notice that the event occurred close to the peak of Minute wave [b] up within a larger double zigzag structure. Since the event, the DJIA, S&P 500, and the Wilshire 5000 closed down roughly 2% for the week with the DJIA declining 158 points earlier today.

The primary count still favors the double zigzag structure for the wedge collapse, Intermediate wave (A) of Primary wave [B] down (2012 - 2016), with the double combination (expanded flat - x wave - zigzag) structure being the alternate scenario. The proposed Minute wave [b] within Minor wave W has retraced 90% of the proposed Minute wave [a] in the Wilshire 5000, but still well short of the 90% threshold for the DJIA and the S&P 500.

The implication of a wedge collapse in the stock market is a fast decline in social mood. With social mood going south fast, approval ratings will also take a big hit with Obama's approval rating possibly falling below 30% by June 2013. On the short term, the United States is facing a "fiscal cliff crisis" with President Obama and John Boehner desperately hoping to reach a deal on taxes and spending before the clock expires. The United States is also facing a "debt ceiling crisis" as well with the $16.4 trillion debt limit on the verge of being hit (if not already there) with the Treasury Department using accounting maneuvers to buy time for Congress to act on raising the debt ceiling. A rapid increase in bearish social mood due to a wedge collapse is expected to result in increasing strife and discord between President Obama and John Boehner with a dangerous game of chicken involving the US economy once again in play. The best case scenario is for the can known as the "Bush Tax Cuts" to get kicked down the road once again. The worst case scenario is for the United States to actually go off the fiscal cliff due to strife and discord in the political arena with austerity measures in the form of tax increases and spending cuts to go into effect as soon as we enter the year 2013. It is possible that going off the fiscal cliff (if it were to happen) will lead to another credit rating downgrade on US government debt as we approach the climax of Intermediate wave (A) of Primary wave [B] down on June 2013.

In spite of the fiscal cliff drama and the debt ceiling about to be hit, the American populace is still very optimistic about Obama's accomplishments in the years ahead, with many already comparing Obama to FDR:

1 -- FDR vs Obama -- "Obama invokes FDR in his convention speech".  The American populace already see Obama as a parallel of FDR.

2 -- Politico -- "Obama Channels Teddy Roosevelt". Even centrist Republicans are displaying optimism on Obama's future legacy. This shows that the bullish optimism is broad based and not confined to the liberal factions in the American populace.

3 -- Suite 101 -- "Comparing Barack Obama to Franklin D Roosevelt". Even in early 2009 with the climax of Cycle wave w (2000 - 2009) of Supercycle wave (a) down (2000 - 2042) unfolding, people were still very optimistic that Obama would be the new FDR.

Comparisons to FDR are a product of linear extrapolation. With the 2012 election completed with Obama winning a second term, just about everyone is making large extrapolation leaps with the prediction that Obama will have an FDR type of legacy in 2017. The tendency for large extrapolation leaps is yet another peaking signal, along side the "Magazine Cover Indicator".

The "Obama brand" is expected to collapse in the coming years as Primary wave [B] (2012 - 2016) of Cycle wave x (2009 - 2021) unfolds with the peak about to be reached before the multi-year decline starts. During the wedge collapse, Intermediate wave (A), Obama's approval rating is expected to fall to the 28% to 32% range by June 2013. During Intermediate wave (B) up, which should unfold from June 2013 to June 2014, Obama's approval rating will get a sizable bounce, but put in a lower high (low to mid 40s approval rating) relative to the current approval rating peak of 54%. During Intermediate wave (C) down from June 2014 to June 2016, markets are expected to embark on a massive waterfall decline. With Obama's approval rating falling to the low 20s by 2016, bearish social mood is expected to result in the GOP attempting to get Obama impeached starting in 2015 -- the impeachment is expected to be successful in the House, but expected to fail in the Senate (Democrats will be united in keeping Obama in power). Obama's approval rating could easily fall below 20% by the time the 2016 election takes place.

Sunday, December 16, 2012

Hard Times, Not End Times

As we approach the fateful date, December 21, 2012, the doomsday phobia continues to grow. With social mood going south again with the retracement of the 2 year bearish rising wedge in the DJIA, S&P 500, and Wilshire 5000 in progress, the doomsday phobia is likely to grow more and more pervasive as we go through the last few days before reaching December 21, 2012.

Here is an updated chart of the DJIA, showing the retracement of the rising bearish wedge in progress:

The primary count is that the wedge collapse is Intermediate wave (A) down of Primary wave [B] down (2012 - 2016) of Cycle wave x up (2009 - 2021) with the wedge collapse unfolding as a double zigzag. There are other possibilities, of course, on how the wedge collapse could unfold, as it could also unfold as a zigzag, triple zigzag, or even a double combination structure (expanded flat -- x wave -- zigzag). The double combination scenario would involve the markets putting in a marginal new high (the rally off the November 2012 low point is clearly corrective) before commencing lower to complete Minor wave W down as an expanded flat, which would be followed by Minor wave X (any corrective pattern) and then Minor wave Y down unfolding as a zigzag.

Here is a chart showing the wedge collapse in detail:

Markets may be able to find support at the area shown by the red box. The support level is very significant because it is the level associated with the most recent Zweig Breadth Thrust signal. Losing this level as support is considered bearish, so the markets are expected to hold the level (11000 - 11250) as support for at least a short time. However, the larger bear market trend will be in control, so the support level is expected to be lost quickly as Minor wave Y of the double zigzag unfolds, which would then be followed by a full retracement of the 2 year rising bearish wedge a short time later.

As we approach December 21, 2012, the doomsday phobia is already in full swing, of course augmented by social mood going south at Primary degree within a much larger bear market. In spite of NASA debunking the 2012 doomsday scenario, there are still at least 1 out of every 10 people that believe that the world is ending just days from now.

Here is a Google Trends chart from 2004 to present with the search term "2012 apocalypse"

Here is a chart showing the trend in the last 90 days (the trend is up):

Bear markets bring hard times for humanity. But there is a great deal of difference between hard times and end times. The Grand Supercycle degree bear market that started unfolding in 2000 is going to result in hard times for many people, but it certainly won't result in the end of the world or the end of human civilization. People were able to weather through the last bear market of comparable magnitude (Grand Supercycle wave [II] down (1720 - 1784)) and human civilization was never in danger of coming to its end back then. We will still be here in 2013, and for that matter, human civilization will still be around when the bear market ends in 2118.

Tuesday, November 27, 2012

Skyscraper Indicator Signals a Top

For the third time in less than 15 years, the Skyscraper Indicator is issuing a peaking signal. The indicator was pioneered in January 1999 by Andrew Lawrence, research director of Dresdner Klienwort Wasserstein,  showing that the world's tallest buildings have risen on the eve of economic downturns.

In the last 15 years, the skyscraper indicator signaled a top in 1997-1999, 2007, and now. A chart of the DJIA of the last 15 years with the important events labelled puts it in perspective:

As the chart indicates, the Petronus Towers in Malaysia were built in 1997 with a height of 1461 ft (448 meters), indicating that a large degree peak was imminent. The completion of the towers was quickly followed by the Asian Financial Crisis, a small taste of the economic major depression that would follow less than 3 years later. Just 2 years later, an even larger building, the Taipei 101 in Taiwan was built, soaring 1671 ft (512 meters) high. The completion of the Taipei 101 was closely followed by the end of the Grand Supercycle degree advance that started in 1784 and the beginning of the economic major depression, the "Crisis of the Western World".

A long topping process has been in progress since the onset of the Grand Supercycle degree bear market, with exuberant optimism stubbornly holding its ground. After the initial decline following the bursting of the dot com bubble in 2000, the DJIA, the S&P 500, and the Wilshire 5000 rallied to new highs in 2007. Just before the 2007 peak was reached, a skyscraper of unprecedented height started to take shape in Dubai as the Burj Khilifa rose 2717 feet (833 meters) into the sky upon completion. Shortly after the building was completed, the "Panic of 2008" struck the western world. The "Panic of 2008" climaxed in March 2009 at the end of the first phase of "The Great Deflation".

As we entered the second phase of "The Great Deflation" in March 2009, exuberant optimism returned within a year. Three years into the bear market rally, at the top of Primary wave [A] of Cycle wave x up (2009 - 2021), China is planning to build the world's tallest skyscraper in just 90 days (!). The new building, Sky City, is planned to be 220 stories, rise 2749 feet (838 meters) high, and be completed around March 2013.  As with the other two peaks, the construction of the building is expected to herald a multi-year decline in the stock market as well as a multi-year decline in the job market, which will be Primary wave [B] of Cycle wave x.

The second phase of "The Great Deflation" is expected to end in 2021, which would be the end of Primary wave [C] (2016-2021) of Cycle wave x (2009 - 2021) up. The second phase could easily climax with nations, states, cities, and even corporations, endeavoring to build skyscrapers well over 3000 feet (920 meters) tall just before the onset of the third phase of "The Great Deflation", Cycle wave y (2021 - 2042), in which a massive deflationary collapse unfolds in full force.

The Skyscraper Indicator has proven to be a very strong predictor of impending economic downturns, going all the way back to the 1800s. Here is a longer term chart of the DJIA showing the correlation between the building of skyscrapers and stock market peaks:

As shown in the chart above, when the Skyscraper Indicator issues a peaking signal, the peak is Cycle degree or higher, with the accompanying economic downturn being a major recession or larger. Due to the 21 year topping process that has been playing out since the onset of the bear market in 2000, social mood has remained very optimistic. With the construction of a massive skyscraper in China on the table, the indicator is issuing a peaking signal and another down-trend is imminent if not already in progress.

Saturday, November 10, 2012

The Next Phase of the Apple Bubble

The next phase of the "Apple Bubble" has commenced. After peaking at $704 a share in late September 2012 and completing the ending diagonal that started in late May 2012, the retracement of the ending diagonal is in progress. The retracement of the ending diagonal is unfolding quite fast with two important support levels already taken out on the way down. In spite of the fast decline, there is a case to be made that the "Apple Bubble" did not burst and that new highs will be reached in the future.

Here is a close-up chart of Apple, showing the ending diagonal and the retracement in progress:

The first important support level that was broken after the peak was reached is the lower trend channel associated with Minor wave 5 of Intermediate wave (3) up. A clean break through the lower trend channel was the first sign of a trend change at Minor degree from up to down. The second important support level that was broken is the lower wedge line associated with the ending diagonal. Notice the acceleration in selling pressure that took place after the lower wedge line was broken -- this is very indicative of a wedge collapse in progress.

A close examination of the structure of the decline from the peak shows that the structure is corrective. This means that the "Apple Bubble" has not burst yet, and the bursting event is still in the future. The wedge collapse is unfolding as a double zigzag, meaning that it would be wave A of a triangle or (much more likely) an expanded flat. The structure is most likely Minor wave A of a larger expanded flat. Within Minor wave A, Minute waves [w] and [x] are completed as per the preferred count, and the second zigzag, Minute wave [y], is still unfolding. A relationship of Minute wave [y] = 2.618 * Minute wave [w] would give a downside target of 452 for the end of Minor wave A. The ideal time for the end of the wedge collapse is December 4, 2012, which would make the time needed to complete the wedge collapse half of the time needed to construct the ending diagonal.

The larger picture is that Intermediate wave (4) down is in progress, unfolding as an expanded flat, which would then be followed by a five wave advance, Intermediate wave (5) up, which would also end the advance at Primary and Cycle degree as well. Here is a chart of Apple updating the larger picture:

The final stage of the "Apple Bubble" should start around June 2013 and last for 1 year, ending around June 2014. A final upside target of $875 to $1000 a share at the peak of the bubble is still in play. Once the final stage of the bubble is completed, the bubble will burst. The ripple effect from the bursting of the "Apple Bubble" will be global -- Just as the South Sea Company was a global bellwether in 1720, Apple is a global bellwether now, so the bursting of the bubble will result in financial fallout on a global scale, including the implosion of the job market throughout the Western World. The unraveling of the bubble should be quite swift, with the company's stock losing perhaps 90% of its value by June 2016.

The final stage of the "Apple Bubble" will play a central role in fueling a powerful rally in the stock market from June 2013 to June 2014, propelling the S&P 500 from 925 to 1550 and the DJIA from 9300 to 14400, as well as a robust wave 2 bounce in the Nasdaq and Nasdaq 100. Once the "Apple Bubble" bursts, the rally will unravel very fast, dropping the DJIA down to 5500 and the S&P 500 to around 525 by June 2016.