Tuesday, April 5, 2011

The Great Deflation

The objective here is to flesh out the rest of Supercycle wave (a), the period that is known as the "Great Deflation".

Primary wave [4] will follow Primary wave [3]. Since Primary wave [2] is a zigzag, then Primary wave [4] would be a flat, a triangle, or a double-three to satisfy the guideline of alternation. Looking at the larger picture, a flat is a virtual certainty since a triangle or a double-three would take too long of time. Primary wave [4] would perhaps serve as a reprieve period from the deflationary crash that had been taking place for 5 years while Primary wave [3] was in force. There would still be a lot of social unrest. We would be past the point of recognition at that point, so pessimism would be the dominant social mood in play. There would be recognition by economists and analysts that a major depression is in force in the economy and job market.

After Primary wave [4] is completed, Primary wave [5] would start. Here's a model used to predict Primary wave [5].

DJIA, 1929 - 1932

There are a number of things to observe from the chart.

1 -- Notice the semi-parabolic shape of the decline following the peak of the bear market rally. This tells of deflation unfolding with increasing momentum over time.
2 -- The model suggests that Primary wave [5] will have a duration of 55 months
3 -- The model suggests that Primary wave [5] will be a stronger downward impulse than Primary wave [3]. The most likely ratio is 1.618.
4 -- The model suggests that all three of the intermediate degree impulses that compose Primary wave [5] will have equal duration, that is, 13 months.
5 -- The model suggests that the intermediate degree corrective waves that are part of Primary wave [5] will each last 8 months.

The model predicts an upside price target of 4633 in the DJIA and 485 for the S&P 500 at the peak of Primary wave [4]. The model predicts that Primary wave [5] will have 1.618 times the downward impulse strength of Primary wave [3].

The DJIA therefore falls by a factor of (1.618 * 5.748) = 9.3007

This gives us a target of 498 in the DJIA at the end of Primary wave [5], which would also end Cycle wave c and Supercycle wave (a). Using the same technique, we get a target of 48 for the S&P 500 at the end of Supercycle wave (a).

There would actually be a fibonacci relationship between Cycle wave a and Cycle wave c in terms of downward impulse strength. Cycle wave a dropped the DJIA by a factor of 1.611. Cycle wave c would drop the DJIA by a factor of 28.441. This gives a ratio of 17.653, which is very close to 2.618 cubed (17.943, which would put the target for Cycle wave c at 491).

Fibonacci convergence patterns are also important and help point out potentially significant events in the future. Here's a chart showing the convergence pattern centered on the year 1987.

We all remember the infamous Black Monday crash that happened when the DJIA fell 508 points in one day.
The next significant Fibonacci convergence pattern is centered on the year 2021. Here's the chart for that pattern.

What's significant about the year 2021? Very likely, it's when Supercycle wave (a) is completed. It would indeed be a significant event.

Here it is. The predicted wave path for Supercycle wave (a).

DJIA, 1995 - 2021

Primary wave [5] will be a period of chaos and social unrest. We have already seen a preview of the hard times that we will face during that time with all the drama taking place in Wisconsin, Michigan, Ohio, Florida, and Indiana with anti-union legislation in progress by the state governments there and the massive protests that followed as people fight for their livelihoods. In 2017, when Primary wave [5] starts, all this will play out full force at the federal level as the Palin Administration imposes austerity measures to balance the federal budget. The chaos, social unrest, protests, and labor strikes that will result will be enormous in magnitude.

Here's the picture so far:

Supercycle wave (a)          2000 - 2021,           "The Great Deflation"

Cycle wave a            Jan 2000 - Oct 2002     Dot-com bubble bursts
Cycle wave b            Oct 2002 - Oct 2007    Stock market and housing bubbles
                                                              (Housing bubble bursts in 2005)
Cycle wave c            Oct 2007 - Nov 2021   Stock market, credit, junk bond,
                                                               commodity, and student loan 
                                                               bubbles burst

Primary wave [1]         Oct 2007 - Mar 2009   Stock market and oil bubbles burst
Primary wave [2]         Mar 2009 - Apr 2011  Early Obama Administration Period
Primary wave [3]         Apr 2011 - Apr 2016  Late Obama Administration Period.
                                                                Credit, gold, silver, junk bond, and
                                                                student loan bubbles burst
Primary wave [4]         Apr 2016 - May 2017  Consolidation period with social
                                                                unrest and chaos
Primary wave [5]         May 2017 - Nov 2021  Palin Administration Period

In the next post, the rest of Grand Supercycle wave [IV] will be projected.

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