Collapse of Mitt Romney in Progress

Mitt Romney's candidacy is collapsing, exactly as I suggested in an earlier post. Mitt Romney's performance in the GOP Primaries and caucuses is unfolding exactly as forecast. As the polls in Missouri, Minnesota, and Colorado closed, Rick Santorum was declared the projected winner immediately after the polls closed. This falls in line with an earlier forecast made back in December 2011, indicating that success will become increasingly difficult for Mitt Romney over time during the time that the second wave of states go through the process of voting for the GOP nominee.

In spite of the nominal DJIA taking out last years high, The DJIA continues to decline from the Minor degree peak in late December 2011 in terms of real money -- the DJIA / gold ratio. The DJIA / gold ratio, known as the "real Dow", has proven to be an excellent indicator for forecasting the fortunes of people in the political arena. Here is an updated chart of the DJIA / gold ratio:

While the Primary wave [3] down count in the nominal DJIA was effectively invalidated, the scenario is still playing out strong in the DJIA / gold ratio -- the "real Dow", indicating that social mood has been deteriorating since the start of the new year. New charts with updated wave counts are coming in the future once the "lay of the land" is reasonably re-assessed. The DJIA / gold ratio is down around 85% from the peak in 1999, while the nominal DJIA is still at elevated levels -- this is indicative of governments, corporations, businesses, and even individuals getting leveraged to the hilt with credit and debt as a massive blizzard of cheap credit continues to expand an over-bloated credit bubble that is now 38 years old.

Mitt Romney's candidacy is collapsing, and the collapse has only begun. As the second wave of states in the GOP Primary go through the process of voting for their preferred candidate, Mitt Romney is expected to continue losing steam, leading to a disappointing performance in Super Tuesday. If Rick Santorun continues winning states in the coming weeks and days as the DJIA / gold ratio goes south, he will eventually be able to claim the nomination outright on Super Tuesday.

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.

Facebook's Mountaintop Experience

There has been a tremendous amount of buzz surrounding the much anticipated Facebook IPO over the last several weeks. Today, Facebook has filed for a $5 billion IPO under the symbol FB. It is very significant that Facebook is filing for an IPO while the peak of Minor wave 2 up is unfolding in the S&P 500 and the Wilshire 5000.

From a socionomic perspective, the timing of Facebook's IPO could be signalling a large degree peak in the stock market with another wave of bearish social mood to follow in the near future. It could also be signalling a peak for Facebook as well, given the insane amount of news coverage in the mainstream media that the IPO has been getting, and the insane amount of anticipation for the IPO as well.

Facebook formed in 2004 and its rise from start-up to a large corporation was very rapid, reaching 500 million users by 2010 and over 700 million today. Facebook was featured in the movie The Social Network in 2010, with the movie opening in theaters in October 2010.

There was an insane amount of anticipation for the Facebook IPO:

1 -- Facebook IPO: What to Expect --- ABC News.

2 --  Facebook plans IPO filing as early as next week -- Jan 27, 2012, Bloomberg

3 -- What to expect from Facebook's IPO filing -- Washington Post

4 -- Facebook may file for IPO this week -- USA Today

There has also been a lot of exuberant bullishness on the potential impact of Facebook's IPO on Wall Street as well:

1 -- Silicon Valley braces for Facebook millionaires -- Yahoo news

2 -- Why Facebook IPO is a bonanza for Wall Street -- CNBC

3 -- Facebook IPO will create a money machine  -- Forbes

Given the insane amount of news coverage that Facebook is getting on its IPO, coupled with the exuberant bullishness on the stock market that is still present, Facebook could be approaching a large degree peak.

"Mountain-top experiences" can unravel very quickly, and Facebook could be in for quite a large fall when social mood starts becoming increasingly bearish in earnest as indicated in the DJIA, S&P 500 and the Wilshire 5000.

The Fall of Mitt Romney

In the last few days, potential voters have been souring on Mitt Romney as evidenced by new polls that are showing that Newt Gingrich is surging in Florida in the aftermath of a strong performance in South Carolina. As usual, journalists in the mainstream media attempt to explain Mitt Romney's fall from grace and attribute the fall to his status as a wealthy elite. Even Jon Stewart has gotten in the act, mocking Mitt Romney for trying to justify making more money in a day than most people make in a year.

Less than a week ago, journalists in the mainstream media were talking about the inevitability of Mitt Romney as the GOP nominee as the large number of articles exemplify:

1 -- KKTV.com -- Sense of inevitability grows around Romney candidacy.

2 -- Daily Kos (Nov 2011) -- Why it is going to be Mitt Romney.

3 -- Intrade -- Mitt Romney's chances of winning the nomination rose as high as 91% on the Intrade site several days ago before a sharp fall started to unfold.

4 -- New York Times -- The Inevitable nominee

Since the fall from grace, many people in the mainstream media attribute Mitt Romney's fall from grace to his status as a wealthy elite. There is just one problem with the supposed connection between the fall from grace and his wealth -- Mitt Romney's status as a wealthy elite has been well known to the American people at least as far back as 2007. The key to the reason for the fall is why now.

Mitt Romney's fall from grace was completely foreseeable using the socionomic model. Consider the forecast of the GOP Primary that I made back in early December 2011, which included the forecast for Mitt Romney's fall from grace. There are a couple of important points to the forecast:

While Minor wave 2 up is unfolding, Mitt Romney will have the wind at his back.

Once Minor wave 3 down starts unfolding, success becomes increasingly difficult for Mitt Romney as the bearish social mood brings out the voter tendency to pick increasingly radical candidates.

Social Mood is the reason why Mitt Romney is on the decline. Even after Newt Gingrich won big in South Carolina, the mainstream media was still convinced that Mitt Romney would ultimately win the nomination. Social mood is getting increasingly bearish again. Even though Minor wave 2 up is still unfolding in the nominal DJIA, the peak of Minor wave 2 up is already in for the DJIA / gold ratio (see this chart). The DJIA / gold ratio has proven to be a very strong indicator of where the approval rating of politicians is going in the future. Minor wave 3 down is already in progress for the DJIA / gold ratio.

Mitt Romney has peaked and has nowhere to go but down. With social mood becoming increasingly bearish as seen in the DJIA / gold ratio, voters will have a stronger tendency to pick increasingly radical candidates. Once Minor wave 3 down in the nominal DJIA starts unfolding in earnest, Mitt Romney's candidacy will collapse, which will make either Newt Gingrich or Ron Paul the GOP nominee.

Reprieve Period Goes Into Overtime

The reprieve period known as Minor wave 2 up has persisted longer than expected, as well as a deeper than expected retracement unfolding. Nothing important has changed as the May 2011 high has not been taken out yet, although the DJIA is going to get very close to doing so. The reason is that market fundamentals continued to weaken over time even as the reprieve period stretched out longer than expected.

In spite of the rally losing momentum, people continue to get more and more bullish. Virtually everyone is bullish on the stock market, economy, and the job market. If there is ever a time for bears to capitulate and give up en masse, it is now. The VIX has also fallen below 20 as well, fulfilling another expectation for the character of the peak of Minor wave 2 up.

For example, volume on the weekly chart has been on a steady downtrend throughout the reprieve period, indicating that the rally from early October 2011 still displays characteristics consistent with the right shoulder in the larger head and shoulders top.

Here is the weekly chart of the DJIA, which is showing that volume has been falling as the market rallied:

The reprieve period could stretch out for a few more weeks, possibly going into early February 2012. Here is a chart of the last part of Minor wave 2 up with Minuette wave (c) of Minute wave [y] of Minor wave 2 up in focus:

The projected upside target is 12825. The DJIA is going to get very close to hitting the May 2011 high, but is expected to ultimately fall a hair short of the benchmark. It is important to recognize that the reprieve period is now running on borrowed time. The call for Minor wave 3 down unfolding as a waterfall decline still stands. The longer the rally stretches out with weakening momentum, the more vulnerable the market will be to a sharp decline when the rally is over. A very nasty "bleeder wave" is in the forecast.

Here is a chart showing all of Minor wave 2 up in the DJIA:

Here is a chart of the DJIA / gold ratio:

Notice that the DJIA / gold ratio peaked in late December 2011. This is yet another indication that the current rally is on borrowed time. When markets rise in nominal terms, but not in terms of real money, the rally is on borrowed time. In a bull market, the stock market rallies in both nominal terms and in terms of real money. The bear market rally from the March 2009 low lasted until May 2011 in nominal terms, but peaked in October 2009 in terms of real money (DJIA / gold). In August 2011, the DJIA breached the March 2009 low in terms of real money, but stayed above the July 2010 low in nominal terms.

The reprieve period should stretch out for a few more weeks. As the last of the current rally from the October 2011 low unfolds, the market internals will continue to weaken, which will ultimately make the markets vulnerable to a sharp decline once the rally exhausts itself. Just before the peak is reached, the last of the bears will almost certainly capitulate and give up -- even the bears that held firm in their bearish outlook in May 2011 will face a very strong temptation to throw in the towel and give up. If there is ever a time for bears to capitulate, it is now.

European Debt Contagion Infecting the Core

The European sovereign debt crisis continues to unfold with the contagion starting to affect even the core European Union nations. The GDP of the European Union is now falling again even in nominal terms. Several days ago, the latest GDP numbers for Germany were released, showing that the nation's GDP declined even in nominal terms, along with Spain, Slovenia, and the UK.  The European Union is also bleeding jobs again with rapidly rising unemployment in most of the peripheral nations in Europe, as well as a decline in manufacturing and factory orders even in Germany.

In the latest series of developments, Standard and Poors downgraded the credit rating of France and eight other European nations. A short time later, the Euro Zone bailout fund was downgraded from AAA to AA+. This is a very clear indication that the sovereign debt crisis in Europe is now infecting the core European Union nations.

Portugal is now following Greece on the road to an eventual default on its debt after having its credit rating downgraded to junk status by all three credit rating agencies, with Spain following close behind. Even as a Greek default looms in the intermediate-term horizon, economists and analysts remain steadfast on their optimistic outlook on the European economy, most dramatically demonstrated by the interview involving the Greek Prime Minister on CNBC.

There are a number of other developments in Europe showing the effects of a spreading debt contagion with even the core nations affected:

1 -- The latest poll is showing that 65% of people in Italy have an unfavorable view of the euro with a substantial portion of the population preferring a return to the lira. This underscores a social trend associated with bear markets, namely the tendency for people to identify with smaller social units.

2 -- The austerity trend in Europe is unfolding in full force even in France and Germany as their governments move to tighten their belts with higher taxes and spending cuts. The social trend of increasing conservatism has continued to increase in Europe, with Greece and Portugal the first nations to implement austerity measures (as they were the first to be affected by the debt crisis) with Spain, Ireland, and Italy following suit. This underscores another bear market trait, namely, increasing conservatism as bearish social mood increases.

3 -- Europe's $39 trillion pension bomb is on the verge of going critical, if it hasn't done so already.

In the western world, the effects of "The Great Deflation" are stronger in Europe than they are in the United States and Canada. In many ways, the developments in the western world are a parallel of the 1930s when Germany defaulting on its debt in 1930 marked the beginning of the third phase of the Great Depression. We are on that path again, and at the present time, the United States is the only developed nation on the planet that is still creating jobs. As with the 1930s, Europe is poised to lead the way into the heart of the abyss with the United States and Canada following suit a few weeks to a few months later as the worst part of "the Great Deflation" unfolds.

Social mood is also deteriorating faster in Europe than it is in the United States as the updated charts of the DAX, FTSE, and the CAC-40 illustrate. The DJIA and the S&P 500 have exceeded the late October 2011 highs, but the DAX, CAC-40, and the FTSE are still below the October 2011 highs, setting up an intra-market bearish divergence.

FTSE:

CAC-40:

DAX:

Social mood in France and Germany has been deteriorating faster than expected -- both indexes are tracing out a truncated C wave within a zigzag in the form of an ending diagonal. If the wave counts for the DAX and CAC-40 are correct, it is a very bearish development as C waves within zigzags almost never truncate, and it is a harbinger of a third wave unfolding as a very fast decline. This is something to really keep an eye on in light of all the economic and political events unfolding in Europe.

A Tale of Two Movements

As the peaking process of Minor wave 2 up continues (Minor wave 3 down is either under way now or it will be very shortly), it has become obvious that Occupy Wall Street has indeed followed the same pattern as the Tea Party. The Tea Party - Occupy Wall Street parallel is only obvious when it is looked at from the perspective of the socionomic model.

Both the Tea Party and Occupy Wall Street were motivated by anger. The Tea Party was motivated by anger over taxes, Occupy Wall Street was motivated by anger over excessive corporate control over politics and the large gap between the top 1% and the 99%. It is important to realize that anger is one of the signature characteristics of bear markets, which is why mass protests only unfold in bear markets of Cycle degree and above.

Here are charts of the DJIA with significant events for both the Tea Party and Occupy Wall Street:

DJIA with significant Tea Party events labelled:

DJIA with significant Occupy Wall Street events labelled:

Detailed information on Wikipedia can be found for both the Tea Party and Occupy Wall Street. Notice that both movements exhibited identical patterns with social mood being the primary driver of both movements from start to end.

The Tea Party :

1 -- The Tea Party formed during Intermediate wave (5) of Primary wave [1] down.
2 -- Upon inception, Glenn Beck of FOX News was the only journalist providing news coverage of the Tea Party protests.
3 -- After forming, the Tea Party rapidly expanded with protests spreading to more and more areas of the United States.
4 -- The Tea Party protests peak just after Primary wave [1] down ended. Virtually everyone in the mainstream media was providing extensive news coverage on the Tea Party with all the journalists convinced that the Tea Party will continue expanding and impact the course of the nation.
5 -- As Intermediate waves (A) and (B) of Primary wave [2] up unfolded, Tea Party protests continued to take place across the nation. The Tea Party was losing steam over time with protests getting smaller as social mood became increasingly bullish.
6 -- Half way through Intermediate wave (C) of Primary wave [2] up, Tea Party protests and rallies stopped, but still had enough juice to win a number of seats in Congress. Christine O'Donnell, Sharron Angle, Joe Miller, Rand Paul and many others won Republican primaries, with some going on to win in November 2010.
7 -- During the last part of Intermediate wave (C), Tea Party protests stopped altogether. By the peak of Primary wave [2] up, the mainstream media became convinced that the Tea Party is a "spent force".

Occupy Wall Street:

1 -- Occupy Wall Street formed during Minute wave [v] of Minor wave 1 down.
2 -- Upon inception, Keith Olbermann of Current was the only journalist providing news coverage of the Occupy Wall Street protests.
3 -- After forming, Occupy Wall Street rapidly expended with protests expanding to more and more areas of the United States (and eventually went global).
4 -- Occupy Wall Street protests peak just after Minor wave 1 down ended. Virtually everyone in the mainstream media was providing news coverage on Occupy Wall Street with people in the mainstream media and even the academic world convinced that the protests will continue to expand and change the course of the nation.
5 -- As Minute waves [w] and [x] of Minor wave 2 up unfolded, Occupy Wall street protests continued to take place across the nation. Occupy Wall Street was losing steam with protests getting smaller and taking place in fewer cities as social mood became increasingly bullish.
6 -- Half way through Minute wave [y] of Minor wave 2 up, Occupy Wall Street protests mostly stopped, but still had enough juice left to block a number of ports on the US west coast on December 12, 2011.
7 -- During the last part of Minute wave [y], Occupy Wall Street protests stopped altogether. By the peak of Minor wave 2 up, New York City authorities became convinced that Occupy Wall street is a "spent force" as the barricades blocking Zircotti Park were removed.


Here are the Google Trends charts for both the Tea Party and Occupy Wall Street:

Tea Party :

Occupy Wall Street:

Notice that the Tea Party and Occupy Wall Street exhibit nearly identical patterns, which tell of waning interest as social mood became increasingly bullish over time.

As Minor wave 3 down is either in progress now or will be very shortly, both of the movements should be re-ignited shortly after the "Panic of 2012" takes place as the center of Minor wave 3 down is reached.