Thursday, May 17, 2012

The Final Thrust

We are on the verge of embarking on the final thrust and put in the final high for 2012 before the markets head lower in earnest in the second half of the year and beyond. Many markets in the Western World (with the exception of France) have been tracing out a complex structure from the October 2011 low. We are approaching the business cycle high point, on course to be reached on June 24, 2012.

Here is an updated intermediate term chart of the DJIA:

The 3 month triangle, Minute wave [x] of Minor wave B, is complete with Minute wave [z] poised to start. Notice that the DJIA found support on the middle blue trend line, which is the inner trend channel line associated with Minor wave B. The triple zigzag should be completed on June 24, 2012 with an upside target of 13625.

Here is a chart showing the 3 month triangle in the context of the larger term picture in the DJIA:

The advance from the October 2011 low is Minor wave B of a larger expanded flat, Intermediate wave (W). At the upside target of 13625, Minor wave B will be 1.618 times the length of Minor wave A. After the final thrust is completed, then Minor wave C of Intermediate wave (W) will unfold and last for around a year with a downside target of 8500 on June 2013.

Many other markets in the Western World are also tracing the same pattern in which Primary wave [W] of Cycle wave x ended in February 2011 with Primary wave [X] now in progress and on course to continue until June 2016.

Here is an updated chart of the DAX:

Unlike other markets, Minor wave B in the DAX traced a simple zigzag and retraced just enough of Minor wave A for Intermediate wave (W) to be a regular flat. Minor wave C of the larger flat is in progress now. The DAX should put in a Minute wave [ii] bounce while the final thrust unfolds in the DJIA before heading lower in a larger third wave sell-off. The downside target for the DAX at the end of Intermediate wave (W) is 3625 to be reached in June 2013.

Here is an updated chart of the FTSE, which is following the wave path of the DJIA quite closely:

As with the DJIA, the FTSE is also tracing a triple zigzag from the October 2011 low. The FTSE is yet to fulfill the requirements for a flat. The minimum upside target for Minor wave B is 5966, the level in which Minor wave B retraces 90% of Minor wave A. Notice that the FTSE found support at the bottom blue trend line, which is part of the outer trend channel associated with Minor wave B. A final thrust should propel the FTSE to at least 5966 to complete the triple zigzag. A five wave decline, Minor wave C, is in the forecast once the final thrust is completed. The downside target for Minor wave C is around 4100, the price level that would make Minor wave C 1.618 times the length of Minor wave A.

There is already a lot of extreme optimism and bullishness. As I suggested in the previous blog entry, economists and analysts will be making large extrapolation leaps for both the stock market and the economy:

1 -- An analyst from BNP Paribas Fortis is forecasting that the DJIA will hit 100,000 (!) within the next 10 years. The analyst is basing the forecast on central banks pumping enormous amounts of money into the markets.

2 -- Federal Reserve worship has reached unprecedented levels with most analysts believing that the Federal Reserve can keep the markets propped up indefinitely.

3 -- Some analysts are even seeing the economic cataclysm in Greece as bullish for the United States economy under the rationale that the economic cataclysm will lead to investors seeking a safe haven in US treasury securities.

4 --  All eyes are on the Facebook IPO, soon to be unveiled. There is almost universal optimism that the IPO will be bullish for the economy and the job market. Facebook's mountain top experience is nearing an end, as suggested in an earlier blog entry. The other side of the mountain is already visible with a long term decline in the future. The seeds of the decline have already been sown as 59% of Facebook users do not trust Facebook to keep their information private. A big social mood decline associated with Primary wave [X] (2011 - 2016) down can easily turn public mistrust into a scenario where people pull the plug on their Facebook accounts by the tens of millions.

In spite of a pervasive atmosphere of exuberant optimism, we are already seeing hints of the next stage of the Crisis of the Western World:

1 -- There is evidence of a bank run in progress in Greece as $894 million were withdrawn from banks in the country in one day. This could easily be a precursor to bank runs in Spain, Portugal, Ireland, and Italy within the next 12 to 36 months as the debt crisis in Europe continues to spread.

2 -- Hollande has been sworn in as the new president of France after an election on May 6, 2012 in which Sarkozy was thrown out of office by angry voters. In spite of talks between Hollande and Merkel in the aftermath of the election aimed at keeping the EU together, Hollande ran on a platform of spending to stimulate economic growth. With social mood poised to go south in the coming months and years, there will be strife and discord between Hollande and Merkel, much like the strife and discord that has been unfolding between President Obama and House Speaker Boehner, and the result will be the same -- large scale political gridlock -- effectively shutting down any attempt to fight the economic cataclysm that is unfolding.

3 -- The United States is dealing with its own version of the PIIGS -- namely Illinios, California, Texas, New Jersey, and Florida. California's budget deficit problems have been making the news again with the deficit expanding to $16 billion with even more budget cuts on the horizon. Keep in mind that California is over three times the size of Greece, so the implications of California going under will certainly result in a deflationary vortex that will drag down the rest of the United States within a matter of months, if not weeks.

The second half of 2012 will go to the bears. Once the final thrust is completed on June 2012, the markets will head lower in earnest for the rest of the year and continuing to decline until the next business cycle low point is reached in June 2016.

1 comment:

  1. A very provoking post.

    I'm not sure what to add right except that I'll be fully considering this over the weekend.

    You are one of a small number who have this outlook for mid June. I even saw one open 'permabear' on CNBC europe with this outlook just last week.

    It'd be ultimate mind-frak for both bulls and bears. Lure in the bulls..and kick all the bears out.

    Good wishes for the weeks ahead.