We are about half way through the three month long reprieve period known as Minor wave 2 up. Reprieve periods do not mean that we will get "rainbows and unicorns", it means a period where conditions temporarily improve but the larger bearish trend in social mood is expected to return with a vengeance after the bear market rally ends. Reprieve periods can still be riddled full of pitfalls. We saw an example of that case in April 2010 to June 2010, during Intermediate wave (B) of Primary wave  up (Mar 2009 - May 2011) when the European debt crisis started to rear its ugly head for the first time.
The current reprieve period has definitely been riddled full of pitfalls with most of them occurring after the second part of Minor wave 2 up (Minute wave [x] for the DJIA, S&P 500, and the FTSE 100, Minute wave [b] for the DAX and the CAC-40) started. Here is a list of some of the pitfalls that have occurred:
1 -- Interest rates on Italian, Spanish, and even French bonds have been on the rise, intensifying the pain of the European debt crisis. The debt crisis is still in remission, but is expected to return with a vengeance in January 2012 (if not sooner).
2 -- Mass police crackdowns against the "Occupy Wall Street" protests unfolded a few days ago with the involvement of the Department of Homeland Security. The crackdowns were mostly a show of intimidation as legions of police officers in full riot gear were deployed in a number of major cities to clear out the protests.
3 -- A version of the "Internet Blacklist Bill" with the name "SOPA" is moving through Congress and it has bipartisan support. This is a blatant form of authoritarianism as the law can be used to shut down large blocks of the Internet under the pretense of fighting piracy, which would result in the Internet becoming increasingly fragmented over time. As I discussed in an earlier blog entry, the bill is mostly supported by the top 1% and it may be an indication that governments are making their move to break the back of the "Occupy Wall Street" protests as the law can result in shutting down Facebook, Twitter, and You Tube (all three have been utilized by the OWS movement).
We are in the second phase of the reprieve period. Here is a chart of the DJIA showing the projected wave path of Minute wave [x] of Minor wave 2 up. Minor wave 2 up appears to be tracing a double zigzag.
The preferred scenario for Minute wave [x] is a double zigzag with the first zigzag, Minuette wave (w), just about done and the second zigzag to take the markets far enough down to fill the gap at 1151 in the S&P 500 (which would be the equivalent to 11100 in the DJIA).
A sharp rally, which would be Minuette wave (x) of Minute wave [x], should unfold next week, pushing the DJIA up roughly 500 points to around 12000. This should be followed by a sharp decline in three waves as a second zigzag, Minuette wave (y) of Minute wave [x], takes the DJIA down to around 10950 and the S&P 500 down to roughly 1125 by early December 2011.
A Santa-Claus rally, which would be Minute wave [y], should unfold through December 2011 and into early January 2012, completing Minor wave 2 up with a target of 11950 in the DJIA and 1260 in the S&P 500. The downward momentum associated with Primary wave  down is expected to re-assert itself in late December 2011, creating the appearance of a running flat in which Minute wave [y] falls short of the peak of Minute wave [w].