Saturday, June 9, 2012

Final Thrust In Progress

The wait was longer than expected but the final thrust that has been in the forecast is finally materializing. The last leg of a Minor degree triple zigzag, Minor wave B up (October 2011 - June 2012) is finally unfolding. The DJIA fell over 1000 points during May 2012 in what would be the last phase of a Minute degree x wave. The thrust is expected to unfold in a very sharp and rapid advance that ultimately unfolds in three waves. The final thrust should be completed on around June 24, 2012.

Here is an updated intermediate term chart of the DJIA:

The triangle count for Minute wave [x] (the second x wave) is still technically valid for the DJIA, but no longer fulfills the "right look" guideline. The preferred pattern for the second x wave is a complex structure (expanded flat - double zigzag - zigzag) that started on March 18, 2012 and ended on June 5, 2012. This count works very well in achieving reconciliation between the S&P 500 and the Wilshire 5000 going down in 5 waves from the peak, but the DJIA going down in just 3 waves from the peak.

The S&P 500, the Wilshire 5000, and the DJIA all fell below the lower trend channel line (the lowest blue line on the chart) on June 1, 2012 on a 90% down day after struggling to hold the trend channel line as support. Several days later, the indexes all reclaimed the lower trend channel line on an 87% up day and then managed to hold the trend channel line as support on Friday (June 8, 2012), which made the case for a final thrust up stronger.

The upside target for the final thrust is 13340 - 13625 for the DJIA and 1415 - 1452 for the S&P 500. An additional indication for the upside target is an inverse head and shoulders pattern that is forming, which is potentially pointing to 13350 as the upside target for the final thrust in the DJIA and 1375 for the S&P 500. The final thrust should be completed on around June 24, 2012 with Minor wave C down (June 2012 - June 2013) to commence afterwards.

Here is an updated longer term chart of the DJIA:

Notice that the triple zigzag, Minor wave B up, is well contained within the trend channel lines with the exception of the brief throw-under that occurred a short time ago. The longer term chart shows the "five waves down" that is expected to follow once the last zigzag is completed.

The small complex structure that unfolded as Minute wave [x] (the second x wave within the triple zigzag) is a smaller version of what appears to be unfolding on a much larger scale.  The current larger structure that is unfolding, Primary wave [X] (2011 - 2016) of Cycle wave x (2009 - 2021) of Supercycle wave (a) (2000 - 2042), appears to be taking a similar wave path, as shown on the chart:

Our equivalent position in the fractal is arrowed on the chart, along with the projected times for the most important high points and low points in the fractal.

As the final thrust unfolds, exuberant optimism is expected to take center stage (see the previous blog entry). The underlying social mood proved to be too elevated for Gov. Scott Walker of Wisconsin to be thrown out by voters on the June 6, 2012 recall election in spite of a criminal investigation involving one of his closest aides that is now in progress. The fact that Gov. Scott Walker won the recall by essentially the same margin that he did in November 2010 is indicative that the bullish social mood now in play is currently conferring the governor a "teflon coat".

Even as exuberant optimism takes center stage, undercurrents of bearish social mood associated with the decline of the stock market during Primary wave [X] (2011 - 2016) down is brimming under the surface:

1 -- Greece is on the verge of running out of cash. The rapid depletion of cash is due to tax revenue drying up as banks stop lending, the government runs into tough challenges collecting back taxes, and declining wages across the board means less tax revenue. There is also speculation that Greece will leave the European Union.

2 -- The Spanish debt crisis takes another turn for the worse when its credit rating was downgraded by three notches, from "A" to "BBB". A number of Spanish banks are also in serious financial trouble and a bailout of the banks appears to be on the horizon.

3 -- There is also speculation about a "Fiscal Cliff" (a term coined by Fed chairman Bernanke) that is set to take effect in January 2013 as a result of a half of a trillion of dollars worth of tax cuts and spending boosts expire at the end of the year. Considering that social mood will have gone south to a considerable degree (look for the DJIA to fall below 10000 by the Nov 2012 election), strife and discord is the most likely outcome as both the GOP and the Democrats stubbornly hold their ground and refuse to come to a compromise on the issue.

4 -- The Federal Reserve is prodding Congress to spend more money to prop up the economy. This is a potential game changer development as far as perceptions of the Federal Reserve's ability to keep deflation at bay is concerned. There is still a widespread belief (particularly among those that are bullish) that the Federal Reserve has the ability to prop up the stock market indefinitely through quantitative easing.

As the final thrust unfolds to its peak in around June 24, 2012, exuberant optimism continues to have dominance. Once the thrust is completed, markets will decline for the rest of the year. As markets decline, the economy and job market will follow the markets lower.

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