The Mother of All Bubbles

It is very obvious that the credit bubble is still expanding even as it already exceeds the South Sea and Mississippi bubbles in size, magnitude, and duration. The credit bubble that is in play throughout the Western World (not just the United States) is literally the mother of all bubbles. The credit bubble did not burst during the "Panic of 2008", in fact, the bubble is over 40% larger than it was in 2007.

The credit bubble formed in 1974, at the start of Cycle wave V (1974 - 2000) up and continued to expand in size and area of influence. As we approached the peak of Grand Supercycle wave [III] (1784 - 2000), a series of smaller bubbles started to form. With a very long topping process in play, we have seen a series of smaller bubbles form and pop in succession even as the mother of all bubbles, the credit bubble, continues to relentlessly expand.

Here is a long term chart of the DJIA from 1997 - 2021 illustrating the topping process and the bubbles:

As the chart illustrates, the first of the smaller bubbles to form and go parabolic was the dot com bubble, also known as the tech bubble. The Nasdaq went parabolic in 1997 and shot up to a peak of 5132. More information on the dot com bubble is here. The bubble popped in 2000, ushering in the first stage of the Grand Supercycle degree bear market and associated major depression in the Western World. The DJIA and S&P 500 also peaked in terms of gold and PPI at the peak of the dot com bubble, and the peak has not been exceeded since. The aftermath of the bursting of the dot com bubble unfolded during Primary wave [A] of Cycle wave a and lasted roughly 34 months. The Nasdaq reached a low of 1108 on October 2002.

In 2003, The Bush 43 Administration and the Federal Reserve attempted to re-inflate the dot com bubble. With the credit bubble relentlessly expanding, the housing bubble started to go parabolic with the government taking part in the bubble. George W. Bush, during the 2003 state of the union address, said that "everyone should be able to afford a house". The parabolic phase of the housing bubble unfolded during Primary wave [B] of Cycle wave a in which the DJIA soared to over 14000 and the S&P 500 hit 1576. While the DJIA reached new highs in nominal terms (DJIA/$ ratio), it remained well below the 2000 high in real terms (DJIA/gold ratio and the DJIA/PPI ratio). The housing bubble popped during the 5 year rally. The popping of the housing bubble, and the sub-prime mortgage crisis that followed, would play a strong role in ushering in the "Panic of 2008", which unfolded during Primary wave [C] of Cycle wave a.

In 2009, the Obama Administration and the Federal Reserve started its attempt to re-inflate the housing bubble. The Obama Administration has thrown more than $7 trillion in cheap money into the economy, and the Federal Reserve has done a series of QE programs since March 2009. The money has pretty much stayed at the top of the pyramid, pumping up equity and commodity markets as well as causing the college bubble, the social media bubble, the Apple bubble, and the Google bubble to go parabolic. The current reflationary period, Primary wave [A] of Cycle wave b, is unfolding as a double zigzag with a projected peak in June 2014.

The rally off the March 2009 low is corrective and the rally has been unfolding with declining volume, with volume spikes during the Flash Crash and the large pullback in August 2011. The chart illustrates the bear market rally:

In bull markets, volume rises as the market rises, and falls during pullbacks. Volume is a very important momentum indicator. Even as the DJIA rose to new all-time highs in nominal terms, the DJIA is still far below the 2000 and 2007 peaks in real terms with the DJIA/gold ratio at 45.9 in 2000, ~16 in 2000 and it is at ~8 now.

Markets are expected to pull back for a few months, then soar again as the final stage of the Apple Bubble unfolds from July 2013 to June 2014. The chart of Apple illustrates the final stage of the bubble:

Apple's stock should fall to a low of $350 a share in July 2013. The structure is clearly corrective, unfolding as either a double zigzag or a triple zigzag. The final stage of the Apple Bubble is expected to unfold as an epic melt-up in the company's stock. Apple is a global corporate bellwether in the same way that the South Sea Company was a global corporate bellwether in the 1700s, so the influence of the bubble will be global. The melt-up is expected to have a very powerful influence, with many tech and social media companies taken along for the ride. The implication of the epic melt-up is a very powerful rally in equity markets with the DJIA hitting 17500 and the S&P 500 hitting 1900 at the peak of the Apple Bubble. It is worth noting that social media has morphed into a full blown bubble of its own, and Google has also turned into a bubble as well.

The Apple Bubble is expected to burst around June 2014 -- at a Kondratieff Cycle high point. The bursting of the Apple Bubble is expected to trigger the bursting of the Goggle bubble and the social media bubble, and the ripple effect will rip the job market apart throughout the Western World. The bursting of the Apple Bubble will usher in Primary wave [C] of Cycle wave w (2000 - 2019) in the Nasdaq and Primary wave [B] of Cycle wave b (2009 - 2021) in the DJIA and the S&P 500.

With a lot of three wave structures in the Nasdaq since the March 2009, the rally from the March 2009 low in the Nasdaq is very likely unfolding as an ending diagonal, as this chart shows:

The longer term chart of the Nasdaq shows a Cycle degree zigzag in progress, likely the first part of Supercycle wave (a) (2000 - 2042) in the index, which should unfold as a double zigzag:

The Nasdaq from 2000 clearly builds the case for the Apple bubble, the Google bubble, and the social media bubble bursting in 2014, while the college/student loan bubble and the credit bubble continues to expand all the way to the end of the "extend and pretend" phase of "The Great Deflation".

The mother of bubbles, the credit bubble, will continue to expand all the way to the end of Cycle wave b (2009 - 2021). Rising interest rates, combined with the continued addiction for debt throughout the Western World, will eventually cause the credit bubble to burst, which would also trigger the bursting of the college / student loan bubble. Just before the bursting occurs, the DJIA will reach 18750 and the S&P 500 will reach 2100. The bursting of the credit bubble will usher in the third phase of "The Great Deflation", Cycle wave c (2021 - 2042) of Supercycle wave (a) (2000 - 2042) in which a deflationary collapse of the economy throughout the Western World unfolds in full force.

The Fall of Obama

All the indicators are now pointing to President Obama approaching a peak of monumental scale with a massive decline (in the "Obama brand") to follow in the aftermath. The peak appears to be imminent if not already upon us. The DJIA, the S&P 500, and the Wilshire 5000 are also indicating a peak of monumental size is in the making as well as Primary wave [A] up (2009 - 2012) has run its course with a massive wedge collapse in progress.

Obama's approval rating is currently at 54% (and peaking), having rose from 48% just before the 2012 elections, but still forming a lower high relative to the May 2011 peak in which Obama's approval rating reached a high of 61%. The lower high is in play in spite of the markets putting in a higher high relative to May 2011.

A few days ago, President Obama was named "Person of the Year" on Time Magazine and appeared on the magazine cover. The magazine cover picture can be seen here. The Magazine Cover Indicator is a peaking signal --- it is an indication that the "Obama brand" is approaching a peak of massive scale and a multi-year decline is imminent.

Here is a chart of the DJIA with the Magazine Cover Indicator event labelled:

Notice that the event occurred close to the peak of Minute wave [b] up within a larger double zigzag structure. Since the event, the DJIA, S&P 500, and the Wilshire 5000 closed down roughly 2% for the week with the DJIA declining 158 points earlier today.

The primary count still favors the double zigzag structure for the wedge collapse, Intermediate wave (A) of Primary wave [B] down (2012 - 2016), with the double combination (expanded flat - x wave - zigzag) structure being the alternate scenario. The proposed Minute wave [b] within Minor wave W has retraced 90% of the proposed Minute wave [a] in the Wilshire 5000, but still well short of the 90% threshold for the DJIA and the S&P 500.

The implication of a wedge collapse in the stock market is a fast decline in social mood. With social mood going south fast, approval ratings will also take a big hit with Obama's approval rating possibly falling below 30% by June 2013. On the short term, the United States is facing a "fiscal cliff crisis" with President Obama and John Boehner desperately hoping to reach a deal on taxes and spending before the clock expires. The United States is also facing a "debt ceiling crisis" as well with the $16.4 trillion debt limit on the verge of being hit (if not already there) with the Treasury Department using accounting maneuvers to buy time for Congress to act on raising the debt ceiling. A rapid increase in bearish social mood due to a wedge collapse is expected to result in increasing strife and discord between President Obama and John Boehner with a dangerous game of chicken involving the US economy once again in play. The best case scenario is for the can known as the "Bush Tax Cuts" to get kicked down the road once again. The worst case scenario is for the United States to actually go off the fiscal cliff due to strife and discord in the political arena with austerity measures in the form of tax increases and spending cuts to go into effect as soon as we enter the year 2013. It is possible that going off the fiscal cliff (if it were to happen) will lead to another credit rating downgrade on US government debt as we approach the climax of Intermediate wave (A) of Primary wave [B] down on June 2013.

In spite of the fiscal cliff drama and the debt ceiling about to be hit, the American populace is still very optimistic about Obama's accomplishments in the years ahead, with many already comparing Obama to FDR:

1 -- FDR vs Obama -- "Obama invokes FDR in his convention speech".  The American populace already see Obama as a parallel of FDR.

2 -- Politico -- "Obama Channels Teddy Roosevelt". Even centrist Republicans are displaying optimism on Obama's future legacy. This shows that the bullish optimism is broad based and not confined to the liberal factions in the American populace.

3 -- Suite 101 -- "Comparing Barack Obama to Franklin D Roosevelt". Even in early 2009 with the climax of Cycle wave w (2000 - 2009) of Supercycle wave (a) down (2000 - 2042) unfolding, people were still very optimistic that Obama would be the new FDR.

Comparisons to FDR are a product of linear extrapolation. With the 2012 election completed with Obama winning a second term, just about everyone is making large extrapolation leaps with the prediction that Obama will have an FDR type of legacy in 2017. The tendency for large extrapolation leaps is yet another peaking signal, along side the "Magazine Cover Indicator".

The "Obama brand" is expected to collapse in the coming years as Primary wave [B] (2012 - 2016) of Cycle wave x (2009 - 2021) unfolds with the peak about to be reached before the multi-year decline starts. During the wedge collapse, Intermediate wave (A), Obama's approval rating is expected to fall to the 28% to 32% range by June 2013. During Intermediate wave (B) up, which should unfold from June 2013 to June 2014, Obama's approval rating will get a sizable bounce, but put in a lower high (low to mid 40s approval rating) relative to the current approval rating peak of 54%. During Intermediate wave (C) down from June 2014 to June 2016, markets are expected to embark on a massive waterfall decline. With Obama's approval rating falling to the low 20s by 2016, bearish social mood is expected to result in the GOP attempting to get Obama impeached starting in 2015 -- the impeachment is expected to be successful in the House, but expected to fail in the Senate (Democrats will be united in keeping Obama in power). Obama's approval rating could easily fall below 20% by the time the 2016 election takes place.

Hard Times, Not End Times

As we approach the fateful date, December 21, 2012, the doomsday phobia continues to grow. With social mood going south again with the retracement of the 2 year bearish rising wedge in the DJIA, S&P 500, and Wilshire 5000 in progress, the doomsday phobia is likely to grow more and more pervasive as we go through the last few days before reaching December 21, 2012.

Here is an updated chart of the DJIA, showing the retracement of the rising bearish wedge in progress:

The primary count is that the wedge collapse is Intermediate wave (A) down of Primary wave [B] down (2012 - 2016) of Cycle wave x up (2009 - 2021) with the wedge collapse unfolding as a double zigzag. There are other possibilities, of course, on how the wedge collapse could unfold, as it could also unfold as a zigzag, triple zigzag, or even a double combination structure (expanded flat -- x wave -- zigzag). The double combination scenario would involve the markets putting in a marginal new high (the rally off the November 2012 low point is clearly corrective) before commencing lower to complete Minor wave W down as an expanded flat, which would be followed by Minor wave X (any corrective pattern) and then Minor wave Y down unfolding as a zigzag.

Here is a chart showing the wedge collapse in detail:

Markets may be able to find support at the area shown by the red box. The support level is very significant because it is the level associated with the most recent Zweig Breadth Thrust signal. Losing this level as support is considered bearish, so the markets are expected to hold the level (11000 - 11250) as support for at least a short time. However, the larger bear market trend will be in control, so the support level is expected to be lost quickly as Minor wave Y of the double zigzag unfolds, which would then be followed by a full retracement of the 2 year rising bearish wedge a short time later.

As we approach December 21, 2012, the doomsday phobia is already in full swing, of course augmented by social mood going south at Primary degree within a much larger bear market. In spite of NASA debunking the 2012 doomsday scenario, there are still at least 1 out of every 10 people that believe that the world is ending just days from now.

Here is a Google Trends chart from 2004 to present with the search term "2012 apocalypse"

Here is a chart showing the trend in the last 90 days (the trend is up):

Bear markets bring hard times for humanity. But there is a great deal of difference between hard times and end times. The Grand Supercycle degree bear market that started unfolding in 2000 is going to result in hard times for many people, but it certainly won't result in the end of the world or the end of human civilization. People were able to weather through the last bear market of comparable magnitude (Grand Supercycle wave [II] down (1720 - 1784)) and human civilization was never in danger of coming to its end back then. We will still be here in 2013, and for that matter, human civilization will still be around when the bear market ends in 2118.

Four More Years of Obama

With all three of the presidential debates completed, the election is looking to be a close contest. The closest parallel to the 2012 presidential election is the 2004 presidential election, in which the incumbent of that time, Bush 43, won a second term by a narrow margin.

From the perspective of social mood, bear markets normally result in incumbents getting thrown out of office by a landslide, as was the case with Herbert Hoover in the 1932 presidential election at the low of Supercycle wave (IV) down and Martin Van Buren in 1840 during Supercycle wave (II) down (1835 - 1859).

The 2012 presidential election, however, is taking place in a mixed mood environment, resulting from a very large bear market rally off the March 2009 low. It was the same way in the 2004 presidential election as well, with a 5 year bear market rally, Primary wave [B] up (2002 - 2007) of Cycle wave w down (2000 - 2009) with a mixed mood environment in play.

In a mixed mood environment, the candidate with the best ground game and the highest level of organizational strength will be the one that wins. George W. Bush (Bush 43) won a second term by a narrow margin in 2004. Bush 43 had a stronger ground game than John Kerry did due in part to the Koch-ALEC cabal and the organization of the religious right. In the current presidential election, President Obama is on course to win a second term by a narrow margin. Unlike the 2008 election in which Obama rode a massive wave of voter anger (from the "Panic of 2008") all the way to the White House, the 2012 election will prove to be much harder and will take a great amount of effort to win. President Obama's superior organizational strength is what will allow him to win a second term in the midst of a mixed mood environment.

The bear market rally off the March 2009 low appears to be incomplete and needs one more five wave rally to complete the structure. The rally should unfold through election day and peak about a third of the way into November 2012, as the chart below illustrates:

The chart above shows Minor wave 5 of the 2 year bearish rising wedge, Intermediate wave (C), that started in June 2010. Minor wave 5 is unfolding as a triple zigzag with the last part of the third zigzag still to come. The upside target is 1484 for the S&P 500 and 13750 for the DJIA.

In the midst of the mixed mood environment are undercurrents of bearish social mood, which is most clearly seen in the DJIA / gold ratio. As the chart below shows, the DJIA in terms of real money is in a very clear down-trend with a series of lower lows and lower highs throughout the Obama Administration Period so far:

The decline in the DJIA / gold ratio also explains why Obama's approval rating displayed a long term down-trend. In addition, the most recent polls are painting a mixed picture, with some polls putting Obama ahead and some putting Romney ahead.

Intrade is currently projecting a 62% chance that Obama will win a second term, although some such as Nate Silver is currently projecting a 73% chance that Obama will win. It will be a close election, with Mitt Romney reaching 250+ electoral votes (it could possibly go as high as 260), but California, Oregon, and Washington will put Obama over the 270 electoral votes needed to win once voting is completed in those three states.

The last two cases of a president winning a second term during a bear market rally was Bush 43 in the 2004 election and Richard Nixon winning a second term in 1972 with the mixed mood environment in play as a result of Primary wave [D] up of a Cycle degree triangle, Cycle wave IV (1966 - 1974). Obama is on course to win a second term on November 6, 2012.

It is perhaps instructive to look back and realize that both Bush 43 and Nixon declined in popularity during their second term. Bush 43 saw his approval rating plunge to 25% in the wake of the "Panic of 2008" and Richard Nixon was pressured out of office less than 2 years later due to scandal. If the forecast for a Primary degree decline from 2012 to 2016 is correct, than Obama will face the same fate as Bush 43 with social mood becoming increasingly bearish, culminating in a wave of voter anger that makes conditions ripe for someone like Michele Bachmann or Paul Ryan to rise to power as the next president of the United States in the 2016 election.

President Obama's approval rating will likely plunge soon after the elections taking place. In the midst of all the talk about a "fiscal cliff" in economic policy that has been dubbed "Taxmageddon" and is set to be reached in January 2013, there is another cliff that we are approaching, and that is the end of a 2 year rising bearish wedge in the DJIA, S&P 500, and the Wilshire 5000. The resolution of the wedge pattern is expected to be relatively swift with the full retracement of the wedge expected to be completed in June 2013.

Here is a chart of the wedge and the drop-off that follows:

Labelled on the chart is President Obama's approval rating at important junctures. At the May 2011 high, when the DJIA reached 12876, President Obama's approval rating briefly reached 61% in the aftermath of the assassination of Osama bin Laden. Just 5 months later, at the low of Minor wave 2 down within the larger wedge, the United States was downgraded by Standard and Poors from AAA to AA+, and Obama's approval rating reached a low of 38%. As the peak of the bear market rally approaches, Obama's approval rating has only partially rebounded from the October 2011 low and is currently at 48%.

The expectation is for Obama's approval rating to take a massive plunge downward as the retracement of the rising bearish wedge unfolds. The forecast is for Obama's approval rating to fall to a low of 28% to 32% by June 2013. The sudden decline in social mood starting in mid November 2012 points to a scenario where there is no resolution on the "fiscal cliff" at all due to strife and discord between Obama, John Boehner, Harry Reid, and Mitch McConnell, which could result in another downgrade on the credit rating of the United States.

Journey to the (Primary Degree) Peak

There are now a number of compelling signs that a Primary degree top has already put in or will be registered in the very near future. Both the internal market indicators and the social mood indicators are suggesting that a peak has already happened or will shortly. The S&P 500 and the Wilshire 5000 reached new 2012 highs, exceeding the April / May 2012 highs. The DJIA has yet to confirm the S&P 500 and the Wilshire 5000 higher, but given the tendency for the three indexes to have "similar wave paths", it is quite likely that the DJIA will confirm the other two indexes higher.

The longer term outlook for the 2009 - 2021 period is still intact, with Supercycle wave (a) (2000 - 2042) down unfolding as a complex W - X - Y structure and Cycle wave x (2009 - 2021) up in progress.

The most likely wave count for the S&P 500, Wilshire 5000, and most likely the DJIA as well, is a 3 year zigzag with an ending diagonal for Intermediate wave (C), as the previous main count was invalidated with a new 2012 high in the S&P 500 and the Wilshire 5000. Here is a chart showing the revised wave count in the context of the larger Cycle wave x structure in the S&P 500:

The revised wave count still works within the larger Cycle degree structure, with Primary wave [W] up (nearing its end) lasting 3 years, which would then be followed by Primary wave [X] down from 2012 to 2016, lasting 4 years, then Primary wave [Y] up from 2016 to 2021, lasting 5 years. Cycle wave x would then be a complex (zigzag - double zigzag - expanded flat) structure. 4 years is enough time for the DJIA to fall from 13300 to 5500 and for the S&P 500 to fall from 1430+ to 550, and each of the Primary degree sub-waves that compose Cycle wave x are reasonably comparable to each other in price movement and duration, as well as Cycle wave x (2009 - 2021) being reasonably comparable to Cycle wave w (2000 - 2009) in duration.

However, the previous main count is still working very well for the NYSE Composite as well as the DAX and the FTSE 100. Along side the Wilshire 5000, the NYSE Composite is a market index composed of a large cross-section of corporations and businesses and thus is a broad measure of social mood. The NYSE Composite is in a bearish intra-market divergence with the Wilshire 5000 and the S&P 500, indicating a fractured market.

Here is a chart of the NYSE Composite from 2005 to 2021:

Upside momentum is clearly on the decline, not only with bearish intra-market divergences taking place (the 2012 high in the S&P 500 and the Wilshire 5000 is not confirmed by the NYSE Composite, the Transports, the DAX, the CAC-40, or the FTSE 100), but the rally is being carried by fewer stocks. A substantial part of the recent rally in the S&P 500, the Nasdaq, and the Nasdaq 100 can be attributed to the "Apple Bubble" as well as a social media bubble that is now bursting with the decline of Facebook in progress.

There are also a number of social mood indicators that are signalling a significant top in the markets:

1 -- The first "Magazine Cover Indicator" event took place with "Dow 15000" appearing on the February 13, 2012 cover of Barron's magazine. With the rally from the March 2009 lows losing much of its momentum and with bullish sentiment already in the stratosphere, this event is a significant sell signal for the markets.

2 -- In early August 2012, Mitt Romney called for more bull market in the economy and the job market. This is another very strong peaking signal as politicians are always the last people to act on a trend, and for that matter, the last people to extrapolate a trend. This event is in the same league as the Federal Reserve Chairman saying that "rates will remain low through 2014".

3 -- The second "Magazine Cover Indicator" event took place with the bull market portrayed as unstoppable and invincible on the September 3, 2012 cover of Barron's magazine. Now that everyone is convinced that the "bull market" is unstoppable, the uptrend in the markets from the March 2009 lows is fully played out and ripe for a reversal.

4 -- Just three days later, on September 6, 2012, Vice President Joe Biden declared that "America has turned the corner" on the job market and the economy, saying that "America's best days are ahead of us". This is yet another instance of politicians extrapolating a trend and "predicting the present". Unlike Mitt Romney, Joe Biden has virtually no business experience, so this event is even more significant. The job creation trend has played out for a long enough time that it has become intuitive even for politicians to extrapolate the trend.  America's best days are indeed ahead of us, but those days won't come until the Grand Supercycle degree bear market that started unfolding in 2000, and the associated major depression in the economy, is completed.

The journey to the top of the (Primary degree) peak in the markets have been marked by extreme bullishness, as well as magazine cover indicator events and politicians calling for more bull market in the economy and job market, thereby extrapolating a trend by "predicting the present". These events, along with bearish intra-market divergences and declining momentum, all point to a major reversal ahead.

Trend Extrapolation in Politics

On Saturday, August 4, 2012, an event that is considered very significant from a socionomic perspective has taken place. Most people will not recognize the significance of the event as it will be seen as just one more day of speeches by politicians made in an effort to influence the November 2012 election.

One day after the jobs report was released for July 2012, Mitt Romney made a bullish comment on the job market, saying that "America is poised to take off economically". This event is in the same league as the Federal Reserve Chairman saying that "rates will remain low until 2014.". What we saw is politicians extrapolating a trend that has been unfolding for over 2 years. Politicians are always the last people to act on a trend, and for that matter, the last people to extrapolate a trend. When a trend becomes so obvious that it becomes intuitive even for politicians to extrapolate the trend, the trend has run its course -- in other words, it is a peaking signal at tops.

Here is a long term chart of the S&P 500, with the event labelled on the chart:

Notice when Mitt Romney made the statement about "America being poised to take off economically" -- it is very significant that the statement was made just as Minute wave [ii] up is about to wrap up to a close within the next few trading days, with Minute wave [iii] down of Minor wave C down (April / May 2012 - June 2013) to follow shortly afterwards. The event will indeed turn out to be a significant peaking signal from a socionomic perspective.

The rally also appears to be corrective with a lot of overlapping waves and appears to be forming a bear flag.

Here is a close up of Minute wave [ii] of Minor wave C down in the DJIA:

The chart illustrates how close we are to the end of the rally that started in June 4, 2012. The structure, of course, is a complex (zigzag - double zigzag - flat) structure. The last part of the structure is just about completed with a few more small sub-waves yet to unfold. The waterfall decline to follow should start some time this week.

There is much to be said about Mitt Romney extrapolating a trend that has been in play for over 2 years -- namely extrapolating the trend in the job market. There is a very strong tendency for people to "predict the present" and extrapolate the present into the future when the trend has played out for a sufficiently long time. This event is a peaking signal for the job creation trend as well, with the larger trend of job destruction soon to regain dominance in the job market within the next few months (definitely by the end of the year). With US ISM Manufacturing (officially) in decline for the second month in a row, and US Factory orders and car sales unexpectedly declining last month, there is strong evidence that the declining portion of the business cycle is starting to have an effect on the economy, bringing about the next leg down in "The Great Deflation".

On The Edge

This is an update to the previous post regarding the latest developments involving the rally off the June 4, 2012 low point. The rally is very close to completion with likely a few more trading days to go before Minute wave [iii] of Minor wave C down (May 2012 - June 2013) commences. The DJIA is back above 13,000 and the S&P 500 is nearing 1400. Exuberant optimism is one again evident with virtually everyone calling for new highs especially after the ECB President Mario Draghi vowed to do "whatever it takes" to support the euro currency last Thursday. In addition, virtually everyone in Wall Street is looking for the Federal Reserve to launch QE3 and the ECB to launch yet another round of quantitative easing in the very near future. The exuberant optimism and bullishness will not translate into new recovery highs as the bullish sentiment is very consistent with the character of a bearish wave 2 in a larger decline.

Here is an updated chart of Minute wave [ii] of Minor wave C down. The complex structure is very close to completion as the chart indicates:

The structure unfolded as a complex structure (zigzag - double zigzag - flat) with the last part of the flat (Subminuette wave c of Minuette wave (y)) in progress. Notice that the market is struggling to hold the upper light green channel line shown in the chart as support after reaching the trend line. On the longer term, the market continues its struggle to stay above the lower blue trend channel lines associated with Minor wave B up (Oct 2011 - May 2012) -- the trend lines continue to be important and a decisive failure to hold the lower blue trend lines shown in the chart as support would be very bearish as well.

The markets are on the edge of a massive waterfall decline that should start unfolding in early August 2012 with the center of Minor wave C down to be reached around September 19, 2012 and the end of Minute wave [iii] of Minor wave C down to be reached sometime in early October 2012.

Roadmap for 2012 and 2013

Markets are on the verge of a waterfall decline larger than the one that unfolded in August 2011 as Minor wave C down (May 2012 - June 2013) of Intermediate wave (W) down (Feb 2011 - June 2013) continues to unfold, completing an intermediate degree expanded flat.

All of the major indexes are clearly in the midst of a counter-trend bounce as evidenced by the choppy overlapping waves off the June 4, 2012 low. Here is a chart of the DJIA showing the advance from the June 4, 2012 low:

The rally off the June 4, 2012 low, identified as Minute wave [ii] of Minor wave C down, is nearing completion. The rally appears to be unfolding as a double zigzag with minuette degree sub-waves (w) and (x) complete and the second zigzag in the process of unfolding. With Minuette wave (y) = 0.618 times the length of Minuette wave (w) in the DJIA, an upside target of 13085 is projected based on the fibonacci relationship between the first and second zigzags within Minute wave [ii]. The rally is also losing momentum as the RSI and MACD are no longer confirming the move higher.

Minute wave [ii] of Minor wave C down is projected to reach completion in early August 2012. A massive waterfall decline, Minute wave [iii] down, will follow and last roughly 3 months. Here is a longer term chart of the DJIA, showing an updated road map for Intermediate wave (W) down (Feb 2011 - June 2013) of Primary wave [X] down (Feb 2011 - June 2016) within Cycle wave x up (2009 - 2021):

First the longer term perspective. Since Minor wave B up (Oct 2011 - May 2012) is almost 1.618 times the length of Minor wave A down (Feb 2011 - Oct 2011), then it is very likely that Minor wave C down (May 2012 - June 2013) will have 2.618 times the length of Minor wave A. This projects a downside target near 8500 for the end of Intermediate wave (W) down in the DJIA. Now we consider Minor wave C down in terms of its smaller sub-waves. Minute wave [i] down has 27% of the projected length of Minor wave C down with most of it retraced by Minute wave [ii] up. With 93% of the distance to the projected downside target of Minor wave C at the end of the second wave yet to be traversed, there is a strong case for Minute wave [iii] down to have 2.618 times the length of Minute wave [i] down, which projects a downside target of 9750 by October 2012.

Minute wave [iii] down should unfold during August, September, and October with the center of the downward impulse occurring around September 19, 2012. The "point of recognition" is important as evidence of the declining part of the business cycle should be abundantly clear by then, resulting in the Federal Reserve making a move to launch QE3 in an effort to prop up the economy and the stock market. After a multi-month sideways period, Minute wave [v] down should last 3 months with the center of the downward impulse occurring around May 20, 2013. The center of Minute wave [v] should be significant as well. Recall that Occupy Wall Street appeared in September 2011 as the fifth wave of the expanded flat (Minor wave A down)) unfolded. The center of Minute wave [v] down is expected to be associated with the advent of "Occupy Wall Street Phase 2" in which a much larger number of people take to the streets than before.

The same type of scenario also applies to broader markets as well, as the chart of the S&P 500 shows with the Intermediate degree expanded flat unfolding in the index:

The target for Minute wave [ii] of Minor wave C down in the S&P 500 is 1405. Minute wave [iii] down is expected to take the S&P 500 down to 1000 with the relationship Minute wave [iii] = 2.618 * Minute wave [i] expected to unfold. The downside target for Intermediate wave (W) down in the S&P 500 is 814, to be reached in June 2013.

The second half of 2012 and the first half of 2013 will go to the bears as the rest of Intermediate wave (W) down unfolds, after which the markets are projected to rally from June 2013 to June 2014. By the end of Intermediate wave (X) up, there should be a consensus that QE3 was successful in propping up the stock market. The upside targets for the end of Intermediate wave (X) is 1100 in the S&P 500 and 11700 in the DJIA. Intermediate wave (Y) will then follow, unfolding as a zigzag, completing Primary wave [X] down in June 2016 with a downside target of 5500 in the DJIA and around 550 in the S&P 500.

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.

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.

A Time of Consolidation

The stock market has been in a three month consolidation period that is nearing completion. After the consolidation period is complete, a final push to new bear market rally highs is expected before peaking for the year on June 24, 2012 as the business cycle high point is reached.

Here is a chart of the DJIA:

The DJIA has been tracing out a 3 month expanding triangle, which is identified here as the second x wave of a larger triple zigzag, Minor wave B. Wave B is the complex leg, unfolding as a triple zigzag. Waves A, B, C, and D are complete with wave E of the triangle close to completion. The triangle should be completed on May 15, 2012 with a downside target of 12680. The triangle will be followed by a powerful thrust upwards in three waves that will take the DJIA to the upside target of 13625 by June 24, 2012.

Wave E of the triangle is unfolding as a simple zigzag. The E leg of the triangle contains a smaller triangle as can be seen on a close-up view of the DJIA:

The triangle, Subminuette wave b of Minuette wave (e), has a duration of around 3 days and should be completed late tomorrow (May 10, 2012, around 2 PM New York time). The smaller triangle is also unfolding in the S&P 500 and the Wilshire 5000. The D leg is likely the complex leg (double zigzag) of the smaller triangle.

The triangle count for Minute wave [x] (the second x wave in a triple zigzag) only applies for the DJIA. In the S&P 500 and the Wilshire 5000, Minute wave [x] is unfolding as a double three (expanded flat - triple zigzag -- flat) pattern that will also end in May 15, 2012.

The chart for the S&P 500 illustrates the double three count:

The downside target for the S&P 500 is 1336, reflecting the relationship Subminuette wave c = 1.382 * Subminuette wave a within Minuette wave (y). After the downside target is reached, a powerful thrust to 1452 is expected to follow with the upside target reached on June 24, 2012.

A time of consolidation is in progress with one final push to new bear market rally highs to start on May 15, 2012. Exuberant optimism should go into the stratosphere during the final thrust with the possibility of record bullishness in the picture. The record bullishness could easily take the form of people making very large extrapolation leaps, such as calls for Dow 30,000+ and a lot of talk about the "American Miracle" in the economy from economists and people in the mainstream media.

Business Cycle High Point Ahead

We are approaching an important juncture in the stock market and economy, namely the next business cycle high point that is on course to be reached around June 24, 2012. The short term trend in the stock market is still up. However, the top alternate count as suggested from an earlier blog entry has emerged as the preferred count, which would put the orthodox high of the Primary-degree advance from the March 2009 low in February 2011.

Here is an updated chart of the DJIA, starting from the orthodox high on February 2011:

In the second phase of "The Great Deflation", the corresponding structure -- Cycle wave x -- started in March 2009 and is unfolding as a complex structure with Primary wave [W] complete in February 2011 and Primary wave [X] down in progress with Primary wave [Y] starting in June 2016 and continuing until 2021.  Primary wave [X], as per the preferred count, would itself be a complex structure. The expanded flat structure that unfolded from February 2011 to October 2011 would be Minor wave A of a larger expanded flat, Intermediate wave (W), in which Minor wave B of the structure is in progress and is unfolding as a triple zigzag.

Within Intermediate wave (W) in the DJIA, Minor wave B is on course to reach 1.618 times the length of Minor wave A, which would give an upside target of 13625. In the S&P 500, a more likely relationship is Minor wave B = 1.382 times the length of Minor wave A, which gives an upside target of 1452. Both of the upside targets should be reached around June 24, 2012.

After the business cycle high point is reached, markets will head lower with Minor wave C of Intermediate wave (W) unfolding as a five wave structure that will take around a year to complete with a downside target of around 8500 in the DJIA and 850 in the S&P 500, both to be reached around June 2013.

Here is a longer term chart of the S&P 500 showing how Primary wave [X] is likely to unfold with the structure reaching completion in June 2016:

Look for the Federal Reserve to step in with a third round of quantitative easing once the DJIA falls below 10000. QE3 is likely to be launched later this year, but after the November 2012 general election takes place. The market action in Intermediate wave (X) will create the appearance that QE3 is succeeding in propping up the stock market. The markets will put in a lower high around June 2014 before a long hard fall, Intermediate wave (Y) follows, unfolding as a zigzag and taking the markets down to the lower trend line shown in the chart, which connects the October 2002 and March 2009 low points. The markets should find support at the lower trend line shown in the chart at the next business cycle low point in June 2016.

When the business cycle high point is reached later this year, the economy is expected to decline in nominal terms as well as real terms. Last week's reading on the nominal GDP of the US economy came in at 2.2% for the first quarter of 2012. Considering that the Bureau of Economic Analysis (BEA) has used a GDP deflator of just 1.2% in the last 6 months, it's no surprise that the economy continues to decline in real terms. Considering that the actual inflation rate is around 7% (as per Shadow Government Statistics), production of goods and services in the United States is essentially at the same level it was in 1982, with the bear market erasing 18 years of economic growth as of today. In many nations of the Western World, there is already a resumption of economic decline in nominal terms with many nations in Europe reporting that their nominal GDPs are declining.

The US Dollar Index is also supporting the idea of a business cycle high point around June 24, 2012 as the dollar has already completed a Minor degree leading diagonal with a retracement in progress. Here is an updated chart of the US Dollar Index:

As pert the main wave count, Minor wave 2 down is in progress, unfolding as a complex structure (expanded flat - expanded flat - zigzag) and should be done in late June 2012. The start of Minor wave 3 up in the US Dollar Index corresponds very well with the start of the five wave decline in the stock market (Minor wave C in the DJIA and the S&P 500). The US Dollar Index continues to paint a picture of a deflationary collapse in the economy as most of the debt in the world is denominated in dollars, and the deflating of the credit bubble would make the dollar more valuable as there would be fewer dollars in the global economy.

Update on Our Current Position

The markets are still telling us that we are in a Grand Supercycle degree bear market, and therefore in a major depression in the economy. However, there is still a lot of exuberant optimism that has to be overcome before the markets can head decisively lower, as the (more complex than first thought) peaking process is indicating.

So far, most of the damage has unfolded behind the scenes, and it will continue to be the case for many more years before the bottom finally falls out. While the markets and the economy may appear to be healthy on the outside, there is already a lot of rot on the inside:

1 -- Bull markets rise not only in nominal terms, but in terms of purchasing power and in terms of real money (gold). In a bull market, the DJIA / gold ratio confirms the nominal DJIA. The DJIA / gold ratio peaked at around 45.8 in late 1999, just before the nominal DJIA put in its orthodox top in January 2000. While the nominal DJIA remains at elevated levels, the DJIA / gold reached a new low of 5.8 on October 2011 for a decline of 87% from the peak in real terms. The trend in the DJIA / gold ratio is clearly down. Neither the rally from 2002 - 2007 or the current rally from the March 2009 low are confirmed by the DJIA / gold ratio, so both must be characterized as bear market rallies regardless of how far the rally gets. The rally from the March 2009 low is not an impulse, since the DJIA / gold ratio is not confirming the move.

Here is an updated chart of the DJIA / gold ratio in the last three years:

2 -- The economy peaked in 2000 in terms of purchasing power (real GDP). The nominal GDP continues to hit new highs with a 2.8% annual rate of growth in the last quarter of 2011. The continued rise in nominal GDP reflects a relentless devaluation of the dollar, rather than real economic growth, as people, governments, corporations, and businesses become leveraged to the hilt with credit and debt. To get the actual inflation numbers, and thus the actual real GDP numbers, we go to the Shadow Government Statistics website, and use the numbers to generate a chart of the real GDP over time.

Here is the updated chart of the real GDP of the United States economy:

Without the distorting effect of government manipulation of the economic numbers, there would be no question at all that a major depression is unfolding. The bear market has already erased 17 years of economic growth as the United States economy now produces the same amount of goods and services as it did in 1983.

3 -- Job Market fundamentals continue to weaken. The economy was actually creating family wage jobs all the way up to the Grand Supercycle degree peak in 2000. The US economy stopped creating family wage jobs in 2000 and stopped creating living wage jobs in 2007. The trend of job creation that has been unfolding during the Obama Administration Period is primarily driven by the continued purging of full time workers (that are paid a living wage with benefits) and replacing them with temporary workers that are paid minimum wage with no benefits, creating a larger version of the phony Texas Miracle that unfolded while Rick Perry was the state's governor. The Unites States is more plutocratic now than it was during the Bush 43 Administration Period as the chasm between the top 1% and the working class continues to widen.

 4 -- The stock market is currently in the midst of a (more complex than first thought) topping process. The major depression is currently unfolding in a punctuated fashion, as with the bear market and "The Great Deflation". Instead of a simple expanded flat for Supercycle wave (a), we are now dealing with a complex structure. A longer and more complex topping process means that the Federal Reserve, along with the Obama Administration (2009 - 2016) and the Bachmann Administration (2017 - 2024) will be able to keep the debt game going for quite a while longer before the bottom finally falls out and "The Great Deflation" unfolds in full force.

 Here is a chart of the current rally from the March 2009 low. Since the DJIA / gold ratio is not confirming the move, the rally must be characterized as a bear market rally rather than an impulse. Also quite telling is volume and momentum, which also tell of a rally that is moving against the larger trend.

The rally from the March 2009 low is best characterized as a complex structure with a zigzag for W, an expanded flat for X, and a running triangle (notice the series of 3 wave moves off the October 2011 low) for Y. The end of the rally should correspond with a business cycle high point that is coming up in June 2012 with an upside target of 13750 for the DJIA and around 1440 for the S&P 500. The end of the rally completes the first subwave of Cycle wave x. The upside target should also adequately fulfill the Zweig Breadth Thrust signal as well.

On the longer term, Supercycle wave (a) is unfolding as a complex structure, with Cycle wave w unfolding as an expanded flat, Cycle wave x unfolding as a running flat, and Cycle wave y unfolding as a zigzag. Here is a chart showing the complex structure:

Business cycle and Kondratieff Cycle high and low points are utilized to identify important junctures in the stock market. Even in a major depression, both are still operating -- a major depression would typically have 12 to 18 business cycles.

With each bubble that pops, the foundation holding up the house of (credit) cards weakens. Once the last bubble (which should be the credit bubble) pops, the bottom falls out and "The Great Deflation" starts unfolding in full force. The critical event should correspond with the end of Cycle wave x in 2021 (the next business cycle high point). Notice the steeper slope of the trend channels associated with the zigzag that starts unfolding in 2021. The house of (credit) cards is so large that it will take a very long time to fully collapse once the bottom falls out -- thus the 21 year duration for Cycle wave y. The end of "The Great Deflation" corresponds with yet another Business cycle low point in 2042.

The start of Cycle wave w to the end of Cycle wave x is a fibonacci 21 years.
Cycle wave y lasts a fibonacci 21 years.

The complex structure of Supercycle wave (a) rules out a triangle for Grand Supercycle wave [IV], since triangles almost always have a complex leg in either wave C or wave D. The preferred scenario is for Grand Supercycle wave [IV] to unfold as a flat. Since Supercycle wave (a) is the complex subwave, then the general guideline for a flat in this case is for Supercycle wave (b) to unfold as a simple zigzag. Supercycle wave (c) would then unfold as a 5 wave structure and end just beyond the end of Supercycle wave (a) with a downside target of 250, to be reached in 2118 -- a Kondratieff cycle low point. The downside target also fulfills another important Elliott Wave guideline, namely that Grand Supercycle wave [IV] achieves the target range of the fourth wave of one lesser degree, the levels that the stock market was at during the Great Depression.

Here is the chart showing all of Grand Supercycle wave [IV]:

The major depression is expected to unfold in three phases, as follows:

Supercycle wave (a)  --  "The Great Deflation"  (economic cataclysm)  2000 - 2042

Supercycle wave (b)  --  Green Technology Age   2042 - 2076

Supercycle wave (c)  --  "The Great Tribulation"  (social cataclysm)  2076 - 2118

A 4000 year historical perspective indicates that a major depression typically has a duration of 80 - 120 years, so the 118 year duration that is proposed here is quite reasonable. We are still going through a complex topping process in which there is a massive blizzard of cheap credit thrown into the financial markets to keep the house of (credit) cards intact for as long as possible. The topping process should end in 2021 when the last of the bubbles pop. A critical technical breakdown in the stock market should occur in 2025 when the trend line connecting the 2002 and 2009 lows is broken.