Saturday, February 4, 2012

Climax of Exuberant Bullishness

It's all led up to the main event -- a climaxing of exuberant bullishness as the peak of Minor wave 2 is established. With markets continuing to rally throughout January 2012 on decreasing momentum and volume, exuberant bullishness continued to build to levels that few even thought possible. The reprieve period was originally expected to last 3 months with the markets doing a relatively standard 61.8% retrace of Minor wave 1 down, bringing the DJIA back up to 11930 and the S&P 500 back up to 1260 by early January 2012.

By late October 2011, bullishness started to make a return as we completed the first part of Minor wave 2 up. The peak of Minute wave [w] of Minor wave 2 up occurred on good news -- namely the European debt crisis going into remission when a deal was made in which banks took a 50% haircut on Greek debt. The rally off the early October 2011 low was so powerful that it triggered a Zweig Breadth Thrust signal.

Short term bearish sentiment started to return during Minute wave [x] of Minor wave 2 up, which unfolded during most of November 2011. Bear market rallies can be riddled full of pitfalls, and this one was no exception as many pitfalls showed up in November 2011 with rising interest rates in Italian, Spanish, and French bonds, mass crackdowns on Occupy Wall Street protesters by police, and the SOPA bill (now dead) moving through Congress at that time.

The last part of Minor wave 2 up was kicked off by a mass intervention of multiple central banks with the aim of shoring up liquidity. The DJIA shot up almost 500 points shortly before the intervention started and kicked off a massive wave of exuberant bullishness. In early December 2011, bullishness became dominant again with economists, analysts, and the mainstream media getting bullish on the economy and the job market.

By late December 2011, expectations for a three month long reprieve period were fulfilled.  Throughout the course of Minute wave [y] of Minor wave 2 up, there was increasing bullishness with increasing calls for more bull market, more economic recovery, and more job creation. Calls for the stock market to take out the 2007 highs were routinely unfolding as analysts became more optimistic under the influence of rising social mood. A waterfall decline was originally expected to start in January 2012, yet even as the reprieve period continued to go into overtime in January 2012, momentum and volume continued to weaken over time as the markets continued to float higher, continuing to signal that a sharp decline is ahead.

By late January 2012, extreme bullish sentiment was taken to the next level as capitulation started to set in. People that have been bearish were throwing in the towel as the markets continued to slowly float higher. The fortitude of even the most staunch of bears was being tested all the way to the core as the markets closed in on 12876 on the DJIA, 1370 on the S&P 500 and 14562 on the Wilshire 5000. Virtually everyone was convinced that the markets could only go up.

The last part of January 2012 marked the beginning of the climax as the mainstream media devoted an insane amount of time to the Facebook IPO as anticipation shot up into the stratosphere. From a socionomic perspective, there was a great deal of significance to the developments associated with the Facebook IPO as Minor wave 2 neared completion. This was Facebook's mountain top experience unfolding, much like Apple with its blowout earnings earlier in the month.

The climax of extreme bullish sentiment came with the jobs report that came out yesterday. It wasn't the rate of job creation or the official unemployment rate (U-3) that resulted in the reaction from the mainstream media and economists, for the economy was also creating jobs at the same rate in the first few months of last year. The mainstream media devoted around the clock coverage on the jobs report and the job market (a type of event that almost never occurs). Virtually everyone is convinced that the job market recovery will continue to unfold. As a testimony of the extensive news coverage devoted to the jobs report, there was coverage on Hardball with Chris Matthews, Nightly News with Brian Williams, the Rachel Maddow show, and CNBC. The markets shot up in an exhaustion gap in the morning hours before the jobs report was released and continued higher through the morning hours. The DJIA came within 6 points of hitting the May 2011 high before going lower and sideways for the rest of the trading session. Bullish sentiment climaxed as > 99% of analysts are strongly convinced of the inevitability of new highs in the stock market, as well as > 99% of economists and analysts convinced that the economy and job market can only go up. Exuberant bullishness has indeed reached an epic climax. From a socionomic perspective, such an event is a signal of a large degree peak with a reversal in the stock market, economy, and job market just around the corner.

The last time that exuberant bullishness climaxed was in May 2011 with the news of the assassination of Osama bin Laden. The event marked the peak of Primary wave [2] up and President Obama's approval rating briefly reached 61% in the aftermath of the event.  After the event took place, markets declined, unfolding as Minor wave 1 down within a much larger Primary degree downward impulse.

Increasing hard times are in the forecast for 2012 as we enter Minor wave 3 down in a matter of a few days at the most if we are not there already. The Minor degree bear market rally for the Wilshire 5000, the S&P 500, and the DJIA all appear to be complete.

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