All the Same Market

For a number of years, the analysts at Elliott Wave International have been proposing that all the markets are moving together in a deflationary environment. The stock markets of the G-7 nations have been moving in lockstep with each other, with the exception of the Nikkei 225 index. It isn't just stock markets that are moving together, we are even seeing commodities (compare the DJIA to the CRB index) and gas prices at the pump move in the same direction as the stock markets of the G-7 nations. One of the latest articles on the subject is here.

Going with the idea that all the markets are moving together in a deflationary environment, there is a strong case to be made that we have completed just the first part of Minor wave 2 up.  This also strengthens the idea of the name "Crisis of the Western World" for the period associated with Grand Supercycle wave [IV], since the bearish social mood is affecting Western Europe, Canada, and the United States (commonly known as the western world) simultaneously.

Here are the charts of the DAX and the CAC-40.

Notice that both the DAX and the CAC-40 rallied in 5 waves from their lows. In both cases, Minor wave 1 down ended in late September 2011. The significance of the 5 wave rally is that a 5 wave structure is never the entire correction, just a portion of the correction. Therefore, the 5 wave rally from the low is the first part of Minor wave 2 up, which is unfolding as a zigzag.

Here are the charts for the FTSE and the DJIA.

Notice that the FTSE and the DJIA both rallied in 3 waves. In both of the cases here, Minor wave 1 down ended in October 4, 2011. Since the stock markets of the G-7 nations have moved together, the 3 wave rally from the low is the first part of Minor wave 2 up. A 3 wave beginning in a larger correction indicates a flat or a double zigzag for Minor wave 2 up. The Zweig Breadth Thrust signal that was triggered earlier this month in the DJIA has turned out to be a bull trap.

A 3-3-5 flat scenario for the DJIA calls for a sharp decline in November 2011 in which the markets fall as fast as it went up from the October 4, 2011 low, followed by a moderately sharp rally in December 2011. After the holidays are over, Minor wave 3 down is poised to start in early January 2012.

Two Months of Remission

The European debt crisis has gone into remission. A deal was reached yesterday in which banks took a 50% haircut in order to make Greece's debt sustainable. I had predicted the possibility of a remission in early October 2011 in the blog entry on October 7, 2011.

We may even see the European debt crisis go into remission for a short time.

We are also starting to see a lot of optimism as economists are calling for a new period of economic growth on Greece, which would lower the debt to GDP ratio and ultimately allow the country to get out from under the debt burden by 2021. Much of the optimism is characteristic of the expected personality of Minor wave 2, that is, optimism returns and people become convinced that better days are ahead.

There was also a deal reached on the expansion of the EFSF (the bailout fund) and a second bailout package to avert a Greek default. 

Stock futures in Europe and the United States were rising rapidly as I write this, possibly marking the end of the first part of Minor wave 2 up. A large retracement of the rally is expected to unfold through most of November 2011, then a year-end rally in December 2011 with a target of 11930 for the DJIA and 1260 for the S&P 500 in early January 2012. The targets may turn out to be the orthodox peak of Minor wave 2. The most likely scenario for Minor wave 2 up is a flat or a double zigzag as the rally from the October 4, 2011 low will have unfolded in 3 waves.

In a flat scenario, Minute wave [b] retraces 90% (or more) of Minute wave [a], ideally dropping the DJIA to 10550 and the S&P 500 to 1085, then Minute wave [c] rallies but does not reach the peak of Minute wave [a]. In a flat, wave c does not have to reach the peak of wave a.

In a double zigzag scenario, Minute wave [x] retraces a large chunk of Minute wave [w] during November 2011, then a second zigzag, Minute wave [y], unfolds during December 2011 and early January 2012 to complete Minor wave 2, but Minute wave [y] does not reach the peak of Minute wave [w].

The European debt crisis is in remission. The remission will last around 2 months. The debt crisis is expected to return, worse than before, with the advent of Minor wave 3 down in January 2012. The bailout fund is expected to be overrun with impunity as the economic fault lines in Europe go critical. Italy and Spain are too big to bail out, and will go under after the UK defaults on its debt (possibly around March / April 2012), setting a chain reaction of defaults in motion. Even now, people in Greece have started to turn to bartering as "The Great Deflation" unfolds in full force in that country.

A View of the Bachmann Administration Period

The worst part of "The Great Deflation" will unfold during the Bachmann Administration Period (2017 - 2021), yet we continue to see precursor events that give us an indication of events that will start unfolding in 2017. A case of point is a bill that is being brought to the floor in Congress now, which has been nicknamed the Internet Blacklist Bill and known as the PROTECT IP Act.

The PROTECT IP Act is a blatant form of authoritarianism, and the fact that the bill is moving through Congress while the "Occupy Wall Street" protests are still unfolding may be an indication that governments are making their move to break the back of the protests. The bill would give governments the ability to effectively shut down large sections of the Internet under the pretense of prosecuting copyright infringement laws. Governments that feel threatened by its own people will take steps to shut down the flow of information, which in the 21st century, involve censorship of the Internet -- which can include blocking Facebook, Twitter, and YouTube. The PROTECT IP Act is a form of censorship that is mostly supported by people in the top 1% as well as a number of corporations that put profits before everything else.

The original version of PROTECT IP was filibustered by Sen. Ron Wyden (D-OR). The new House version of the bill has support from both parties, demonstrating the fact that politicians generally represent the top 1% and will do anything to keep the top 1% in power by any means necessary. The House version is very likely to get through the House but get filibustered in the Senate (for at least several months, depending on how soon cloture can be achieved). The bill will never become law as long as Obama is president -- authoritarianism has been substantially constrained at the federal level since the start of the Obama Administration Period, and the trend is expected to continue through the rest of the period.

Once the Bachmann Administration Period starts in 2017, we will see a substantial increase in authoritarianism at the federal level. Michele Bachmann will be substantially more authoritarian than Woodrow Wilson, and the authoritarian impulses will be strongly expressed in the suppression of information flow in an effort to end the "Occupy Wall Street" protests that will involve around 3 million people (in the United States) taking to the streets at that time. There is no doubt that Michele Bachmann will sign the PROTECT IP Act bill into law in early 2017.

Last year, Elliott Wave International had been predicting that the Internet will become fragmented during the worst part of "The Great Deflation" as authoritarian forces assert control in an effort to suppress information flow and silence dissenters. The PROTECT IP Act is a substantial step in the direction of fulfilling that forecast.

The precursors of the Internet, MILNET and ARPANET, will function at full capacity throughout the Bachmann Administration Period. The Internet, however, will become more and more fragmented during the Bachmann Administration Period, and could possibly be shut down altogether by late 2020 as we reach the center of Primary wave [5] down as the collision course between authoritarians and champions of liberty reach an epic climax in 2021.

Precursors of Martial Law

There is now very clear evidence that "Occupy Wall Street" is on a direct collision course with rising authoritarianism. Even as a rising positive social mood associated with Minor wave 2 up continues to temper the protests over time, the mass arrests and other forms of rising authoritarianism are still playing out. Both the protests and the increasing authoritarianism are a result of social mood associated with the bear market that has been unfolding since 2000.

The "Occupy Wall Street" protests are still in the early stages. The protests peaked for the year in the United States around October 6, 2011 with roughly 40,000 people -- just over 0.01% of the population -- taking to the streets. As the worst part of "The Great Deflation" continues to unfold, the "Occupy Wall Street" protests will escalate over time in terms of the number of people taking to the streets, and there will also be an escalation in terms of how governments and law enforcement responds as the protests continue to get larger over time.

One of the recent developments that will prove to be a precursor of events to come is the arrest of Naomi Wolf on October 18, 2011 as she took part in the protests in New York City. The arbitrary arrest and detention of a political activist is a very big deal -- In the 1930s, such an event was a precursor of martial law in Germany and the Soviet Union. The bear market that resulted in the authoritarian regimes in Nazi Germany and the Soviet Union under Stalin is Supercycle degree. We are now in a Grand Supercycle degree bear market, so the potential for authoritarianism in the form of martial law is even greater.

With the worst part of "The Great Deflation" still in the future and Primary wave [3] down (2011 - 2016) still in its infancy, social mood is still dominantly positive. This could explain why Naomi Wolf was released relatively quickly after the arrest and detention occurred. Even now, Naomi Wolf has already expressed concern over heavy handed tactics by law enforcement on the protesters. Another concern that was the involvement of the Department of Homeland Security in the arrest (video is here).


The initial phase of "Occupy Wall Street" started on September 17, 2011 -- during Minute wave [v] of Minor wave 1 down (May 2011 - Oct 2011). As Minor wave 2 up continues unfolding, the protests should lose steam over time, but not completely disappear.

The next phase of "Occupy Wall Street" should start around February 2012 as increasing bearish social mood associated with Minor wave 3 down will reignite the protests and anger over the concentration of wealth in the top 1% continues to build. The protests should slowly grow over time. The center of Minor wave 3 down should be significant. The Intermediate degree "point of recognition", which is projected to be reached in March / April 2012, should manifest itself in the form of police departments stepping up their efforts at breaking up the protests -- expect police departments to utilize tear gas and water cannons on the protesters, even if the protests are peaceful.

The third phase of "Occupy Wall Street" will definitely correspond with Minor wave 5 of Intermediate wave (1) down (May 2011 - Sept 2012) and could start in August 2012. In this phase, expect a larger demographic of people to take to the streets and expect the protests to be 10 times larger than today, with around 300,000 people, or 0.1% of the US population, taking to the streets. The increased size of the protests will be met with an increasingly robust response from law enforcement with a much larger police presence at the site of the protests than today.

The protests will again lose steam through all of Intermediate wave (2) up (Sept 2012 - May 2013), then get re-ignited with the onset of Intermediate wave (3) down. The protests slowly grow over time. With the center of Intermediate wave (3) down -- which should be reached in October 2013 -- efforts aimed at ending the protests get taken to the next level with the Department of Homeland Security getting involved in arresting people seen as protest leaders in an effort to break the back of the "Occupy Wall Street" protests.

Once the center of Primary wave [3] down is reached, social mood will be dominantly bearish.

The next significant phase of "Occupy Wall Street" would start around the middle of 2015 during Intermediate wave (5) of Primary wave [3] down with another massive surge in the protests. By the middle of 2016, the protests will be very large with around 3 million people, or 1% of the US population, taking to the streets. With the unemployment rate (U6) projected to hit 40% by March 2016, there will be a sufficient amount of anger for such a large number of people to take to the streets.

Historically, when the protests reach 1% of a nation's population (critical level is a conjecture at this point), the nation's government generally responds through an extra-ordinary effort to crush the protests. The Obama Administration is likely to remain on the sidelines.

When push comes to shove, governments will act to keep the top 1% in power by any means necessary. Given the precursor events that have unfolded so far with mass arrests, the use of pepper spray on protesters by police officers, baton beatings on protesters by police officers, and now the arbitrary arrest and detention of a political activist, and the use of tear gas and water cannons in the near future, there is no doubt that the "Occupy Wall Street" protests will eventually lead to martial law.

The Bachmann Administration will impose martial law to crush the "Occupy Wall Street" protests. This starts with New York City going into martial law in 2017, followed by Los Angeles, Chicago, Phoenix, Philadelphia, and San Fransisco going into martial law in 2018. During Primary wave [5] down in social mood, the unemployment rate (U6) will be approaching 60%, which will result in a massive tidal wave of anger directed at the top 1%. The final phase should start in 2020, near the center of Primary wave [5] down, where a epic uprising of the 99% against the top 1% will be met with a epic crackdown in which martial law is imposed in every major city in the US. 

Second Phase of Reprieve Period Ahead

The first part of Minor wave 2 up unfolded almost three times faster than expected. This may be due to the high level of volatility that is still present in all of the markets with the VIX still at elevated levels.The larger picture has not changed, however, as the peak of Minor wave 2 up is poised to form the right shoulder of a large head and shoulders pattern in which the April 2010 high is the left shoulder, the May 2011 high is the head, and the right shoulder that is still to come should be completed in January 2012, a Fibonacci 8 months after the peak of the Head in the H&S pattern.

Here is a chart showing that the volume has been declining as the markets moved higher. Declining volume during a rally is a crucial characteristic of a right shoulder in a head and shoulders pattern. I had been proposing a head and shoulders top for many months, well before the markets peaked for the year.

Next, we will compare the form of Minute wave [a] of Minor wave 2 up (Oct 2011 - Jan 2012) to the form of Intermediate wave (C) of Primary wave [2] up (2009 - 2011).

Minute wave [a] of Minor wave 2 up:

Intermediate wave (C) of Primary wave [2] up:

Notice that the two fractals are virtually identical. The same sequence of events unfolded in both of the rallies:

1 -- Initial rally from the bottom.
2 -- Initial retracement of the rally and a successful retest of the previous low.
3 -- The first kickoff in which the markets spiked.
4 -- The markets rally in a narrow band (the trend channels are close together).
5 -- The markets spike to the first local peak.
6 -- Markets pull back after the spike.
7 -- The second kickoff in which the markets spike upwards.
8 -- The markets rally in a narrow band.
9 -- The markets pull back (running flat appearance both times) then a final push to the peak.

The two fractals are also identical in their tendency for the first wave to be the extended wave as well. Combined with the trend of falling volume that occurred in both cases, this is a confirming indication that the rally from the low on October 4, 2011 is a bear market rally.

Minute wave [a] should be completed sometime on October 17, 2011 with a target of 11750 on the DJIA. Notice that Minute wave [a] will have lasted a fibonacci 13 days. This should be followed by Minute wave [b], which is very likely to be a complex fractal that will consume a substantial amount of time to make up for the breakneck speed of Minute wave [a]. After a long period of consolidation, Minute wave [c] should commence around early December 2011 and push the DJIA up to 11930 and the S&P 500 up to around 1260 to complete Minor wave 2 up in early January 2012. Minute wave [c] should unfold much more slowly than Minute wave [a] as complacency is expected to make a comeback with the VIX in the upper teens to low 20s by the end of the year.

Here is a possible scenario for how the rest of Minor wave 2 up might unfold:

We should enter the second phase of the 3 month long reprieve period some time on October 17, 2011. The economic and political fault lines should be temporarily stabilized during that time, and we may even see the European debt crisis go into remission for a short time.

Occupy Wall Street -- Day 26

It is quite clear that Occupy Wall Street is on a collision course with rising authoritarianism throughout the Unites States as mass arrests have taken place in Boston and Seattle, implying that we are seeing evidence of rising authoritarianism even in the blue states. Michigan continues to lead the charge in terms of increasing authoritarianism, as evidenced by the latest developments in which new state laws are in the works that are aimed at overriding local laws.

There is one difference between the Tea Party and Occupy Wall Street -- the difference is that the Tea Party as allowed to do as they wanted without push-back from governments, whereas Occupy Wall Street has been on a constant collision course with rising authoritarianism.

From a socionomic perspective, both the Tea Party and Occupy Wall Street have a common denominator -- they are both motivated by a bearish social mood as angry people take to the streets. In fact, they both exhibit identical patterns, but at different degrees of trend.

The Tea Party formed in February 2009, during Intermediate wave (5) of Primary wave [1] down (2007 - 2009). The Tea Party peaked just after the March 2009 low, then steadily lost steam as Primary wave [2] up (2009 - 2011) continued to unfold. By the time the Primary-degree bear market rally peaked, the Tea Party appeared to be a "spent force". The complete write-up on the socionomic perspective of the Tea Party is here at Socionomics Institute's website (take a look at the chart on the write-up).

So far, Occupy Wall Street has followed the same pattern as the Tea Party. Here is a chart of the DJIA with important events pertaining to Occupy Wall Street added.

The chart shows all of Minute wave [v] of Minor wave 1 down (May 2011 - Oct 2011) as well as the early part of Minor wave 2 up that is starting to unfold. Both the Tea Party and Occupy Wall Street formed during the fifth wave of a larger downward impulse. Afterwards, both the Tea Party and Occupy Wall Street grew in size and picked up steam through the rest of the downward impulse. After the low point of the downward impulse was reached, the protest peaked and started to lose steam. Occupy Wall Street peaked (for the year) on October 6, 2011, 2 days after Minor wave 2 up started to unfold.

Here is a chart of Occupy Wall Street using Google Trends, which shows the search volume of the subject on the Internet over time, as well as the news reference volume. The end of Minor wave 1 down (May 2011 - Oct 2011) and the beginning of Minor wave 2 up is also indicated on the chart.

There is also an element of linear trend extrapolation in play as well. When Occupy Wall Street first appeared, Keith Olbermann of Countdown was the only journalist that covered the events. By the time Occupy Wall Street peaked for the year on October 6, 2011, virtually everyone in the mainstream media was talking about the protests, and people became convinced that the protests would continue to pick up steam in the coming days and weeks ahead.

For the rest of the year, rising positive social mood associated with Minor wave 2 up will chill the Occupy Wall Street protests in the same way that the rising positive social mood associated with Primary wave [2] up (2009 - 2011) resulted in the Tea Party losing steam over time. Occupy Wall Street is predicted to lose steam as Minor wave 2 up continues to unfold. 

If Occupy Wall Street persists through Minor wave 2 up, the next wave of increasing bearish social mood, namely Minor wave 3 down, will re-ignite the Occupy Wall Street protests with people taking to the streets in much larger numbers than today starting in February 2012. Considering that the Occupy Wall Street protests are already in a direct collision course with increasing authoritarianism, it is very likely that police departments will step up their efforts to break the back of the protests -- look for the police to utilize tear gas and water cannons on the protesters in addition to mass arrests even if the protests remain peaceful, and the standoff could get ugly quick after the center of Minor wave 3 down (which would be also the center of Intermediate wave (1) of Primary wave [3] down) is reached around March 2012.

Three Months of Reprieve

We have hit the lows of the year and the "Santa-Claus rally", which would be Minor wave 2 up, has begun. I had been calling for Minor wave 1 down to end in early October 2011 for some time, as well as a downside target of 10180 on the DJIA and 1040 on the S&P 500. The downside targets were not quite reached, but I nailed the time frame quite well. The DJIA reached a low of 10404 and the S&P 500 reached a low of 1074 on October 4, 2011.

Here is the updated chart of the DJIA, showing a projection for Minor wave 2 up.

Minor wave 2 up is projected to last 3 months with an upside target of 11930 for the DJIA and 1260 for the S&P 500 by early January 2012. One of the defining characteristics of this bear market rally, which appeared quite often during Primary wave [2] up, is the tendency for wave 1 to be the extended wave within a larger advance. This means that we can expect that within Minor wave 2 up, for Minute wave [a] to have 1.618 times the length of its first subwave, Minuette wave (i), and that Minute wave [c] will follow the same pattern.

Here is a longer term chart, showing Minor wave 2 up within the context of the larger picture.

Minor wave 2 up represents the right shoulder of a much larger head and shoulders top in the stock market, where the April 2010 high is the left shoulder peak, the May 2011 peak is the head, with the right shoulder peak yet to form in early January 2012. The head peaked a fibonacci 13 months after the left shoulder peak, and the right shoulder peak is projected to occur a fibonacci 8 months after the peak of the head. The target for the head and shoulders pattern is also arrowed on the chart, which would be around 8250 on the DJIA, to be reached sometime in late March / early April 2012.

We are in the beginning of three months of reprieve.  The reprieve period will last through the rest of the year. We may even see the European debt crisis go into remission for a short time. This will be a chance for people to enjoy the holidays in November and December while the economic and political fault lines are temporarily stabilized.

However, 2012 promises to be a very nasty year with Minor wave 3 down poised to get underway in early January 2012.

Occupy Wall Street Gains Momentum

With the low point of Minor wave 1 down in sight, bearish social mood continues to increase at all levels. One of the protests that continues to gain steam is the movement that carries the name "Occupy Wall Street". Not only is the protest continuing to gain steam, but it has also spread to a number of cities such as Boston, Los Angeles, and even Washington DC. The protests started on September 17, 2011 and continue to grow in extent and numbers.

There has been a number of significant developments since "Occupy Wall Street" started:

1 -- On September 24, 2011, a group of protesters were maced by police officers. This event provoked a response from the hacker group Anonymous with the ultimatum that subsequent acts of brutality will result in the police department getting cut off from the Internet.

2 -- On September 26, 2011, Michael Moore showed up at the protests, giving a speech at Liberty Plaza.

3 -- On September 28, 2011, actress Susan Sarandon appeared at the protests, denouncing the wealth gap between the wealthy and the working class. On that same day, Transport Union Workers of America (TWU Local-100) throws their backing with the protests.

4 -- On September 29, 2011, the protests spread to San Fransisco as a group of protesters attempt to occupy Citibank, Chase, and enter a Charles Schwab financial institution.

5 -- On September 30, 2011, AFL-CIO president Charles Trumka speaks out on the protests, recognizing the need for balance between the real economy and the financial economy. Unions started to become increasingly involved in the "Occupy Wall Street" protests.

6 -- On October 1, 2011, The "Occupy Wall Street" protest continued to gain support from more unions as two national unions, National Nurses United and Laborers' International Union of America, cast their full support for the protests. Protests spread to a number of cities as Boston, Washington DC, Seattle, Portland, Chicago, and many others are affected. A large group of protesters shut down half of Brooklyn Bridge for several hours. The occupation of the bridge is followed by mass arrests with over 700 protesters arrested by the end of the day.

7 -- In spite of the mass arrests, protesters remained defiant with many people determined to remain at the scene for the long haul.

Another aspect of bearish social mood that is evident is authoritarianism. The NYPD wasted no time arresting protesters when "Occupy Wall Street" commenced in an effort to stop the protest from picking up momentum. So far, almost 750 protesters have been arrested since the protests started, yet the protests continue to pick up momentum.

In the short term, expect "Occupy Wall Street" to continue picking up momentum with more people showing up. Expect the NYPD to step up the mass arrests in an effort to put an end to the protests. Once Minor wave 1 down in social mood is complete around October 10, 2011, expect the protests to slowly abate (but not completely) over time as Minor wave 2 up unfolds through the rest of the year.

If "Occupy Wall Street" persists into February 2012, increasingly bearish social mood associated with Minor wave 3 down will act to re-ignite the protests with a much larger number of people (possibly rising to 20000 or more by April 2012) taking part in the demonstrations. Tensions between the demonstrators and the NYPD could turn very ugly in the aftermath of reaching the center of Intermediate wave (1) (of Primary wave [3] (2011 - 2016)) down around March / April 2012 with the possibility of the NYPD resorting to the use of deadly force to end the protests.