Friday, September 23, 2011

Rising Tide of Bearish Social Mood

As we head towards the low point of Minor wave 1 down within the much larger Primary wave [3] down, we continue to see a rising tide of bearish social mood. The rising tide is manifesting itself in many ways, from continued protests, increased strife and discord in the political arena, increasing recognition that a trend change has taken place in the economy, and yes, more downgrades from Moody's.

Here is an updated chart of the DJIA, with Minute wave [v] of Minor wave 1 down in focus.

We entered the strongest portion of Minute wave [v] down on late Tuesday, with Minuette wave (iii) in progress and on track to continue until around October 4, 2011 with a target of 10100 in the DJIA.

For many months, I had been predicting that Minor wave 1 down would end in early October 2011. It is now possible to make a more precise forecast -- Minor wave 1 down should end around October 10, 2011 with a target of 9950 for the DJIA and 1025 for the S&P 500.

The rising tide of bearish social mood has been manifesting itself in many ways in the last several days:

1 -- A large protest has been unfolding in Wall Street in the streets of New York City. The protest, which has involved  over a thousand people, have been part of a campaign "Occupy Wall Street" with the aim of calling for structural economic reforms and calling out the misdeeds of the wealthy. Even though the protest has been relatively peaceful, police have blocked demonstrators from reaching the New York Stock Exchange, and a number of demonstrators have been arrested.

2 -- We face the threat of another government shutdown as the GOP and the Democratic Party continue their game of chicken over disaster aid to communities affected by Hurricane Irene.

3 -- Attacks in the political arena have become more aggressive in the last several days as President Obama takes his jobs legislation campaign directly on Rep. John Boehner's home turf, and the GOP stepped up attacks against Obama with insistent accusations of "class warfare". Yesterday, Elizabeth Warren blasted the GOP's class warfare charge as well as their tax cuts for the rich.

4 -- As evidence of increasing recognition of a trend change in the economy, George Soros is now saying that "the double-dip recession is in progress in the United States". In the context of the larger picture, however, the trend change won't be recognized by economists and analysts until the center of Intermediate wave (1) (of Primary wave [3] down) is reached, which should occur around May 2012.

5 -- Moody's downgraded three of the "too big to fail banks" on Wednesday, with Bank of America, Wells Fargo, and Citigroup Inc, all having their credit ratings lowered.  The downgrade indicates that the banks are in worse financial shape now than they were before the TARP bailout in 2008. No downgrade occurred in 2008. The downgrade is also an indication that the Obama Administration will end up bailing out the "too big to fail" banks around May 2012. The original TARP was launched just before the center of Primary wave [1] down was reached in October 2008. Look for the Obama Administration to launch TARP 2 around May 2012, near the center of Intermediate wave (1) of Primary wave [3] down.

The DJIA, S&P 500, and the Wilshire 5000 should hit the lows of the year around October 2011, then they rally for the rest of the year, completing Minor wave 2 up around early January 2012.

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