The Big Picture, part 1

When the period known to the public as the "Great Recession" hit in October 2007 and continued through August 2009, the question that naturally came to people's minds is this: Is it over? Or is the worst yet to come?

Knowing the answer to the question involves much research and looking at the big picture. It makes a great deal of difference if the so-called "Great Recession" is the entire correction, or just a part of a larger correction that is yet to fully play out before an economic recovery can start.

If it was just a major recession (which is what the "Great Recession" would be if it was the entire correction), then the worst is over. When it comes to depressions, major depressions, or even a dark age, it is critical to be able to see it coming before it hits, and to do so with enough time to get properly positioned to ride out the hard times and make it through the correction in one piece.

This is where the Elliott Wave Principle comes in. Pioneered in 1938 by Ralph Elliott, the stock market was discovered to be a fractal. Progress does not occur in a straight line, but is interrupted by corrections of various sizes along the way. The pattern is five waves up, three waves down (or a variation) at all degrees of trend. It is also well known that both the economy and the job market follow the stock market, and thus are fractals as well.

In general:

Primary degree bear markets result in recessions
Cycle degree bear markets result in major recessions
Supercycle degree bear markets result in depressions
Grand Supercycle degree bear markets result in major depressions
Millennium (and larger) degree bear markets result in a dark age.

Because the stock market (and thus the economy and job market) have a fractal pattern, it is a matter of looking at the big picture to determine our current position within the current Elliott Wave sequence.

Since the "Great Recession" would be considered a major recession if it was the entire correction, and major recessions result from Cycle degree bear markets, a good starting point is to determine our position within the larger Supercycle degree advance. In future posts, charts will be put up and the larger picture will be analyzed.