Minor Wave 2 Begins in France and Germany

The initial decline from the peak of the Primary degree bear market rally has ended in the CAC-40 and the DAX. Minor wave 1 down in both France and Germany were completed two days ago. A strong kickoff (up over 330 points in two sessions for the DAX and up over 100 points in two sessions for the CAC-40) from the low indicates a trend change -- Minor wave 2 up has begun in France and Germany.

Here is a chart of the CAC-40:

Here is a chart of the DAX:

As Minor wave 1 down neared completion, Moody's downgraded the credit rating of two major French banks. The downgrade generated fears in the mainstream media that the debt contagion was starting to spill over into the core of the European Union.

Minor wave 2 up will be a sharp 3 wave rally with a 4 month duration, to be completed in January 2012. This represents a short reprieve period for the core of the European Union. By the middle of December 2011, the mainstream media and the politicians will be convinced that the core of the European Union is protected from the debt contagion that is plaguing much of Europe. In January 2012, Minor wave 3 down will start, and all pretense of containing the debt contagion will be shattered.

On the longer term, social mood is deteriorating faster in Europe than it is in the United States and Canada. The DAX, the CAC-40, and the FTSE 100 should breach the March 2009 lows no later than May 2012. In contrast, the DJIA, the S&P 500, and the Wilshire 5000 won't breach the March 2009 low earlier than July 2012.