Good afternoon,
The correction of the DJIA in the past few weeks is likely indicative of a wave change within the larger bear market correction C wave, which began on Oct. 4, 2011. As is visible per my wave count on the below chart, it is highly likely that the bullish movement which began on Jun. 1, 2012 ended on Oct. 8, 2012 represents a intermediate three wave, within a larger three wave, (a,b,c), corrective-bull-market-pattern. (Figures 1,2).
1. Wave Count
(Figure-2)
The first is that this count, to the best of my knowledge, breaks none of the Elliot rules on the daily, monthly or yearly, fractal scales. Take note of the daily third wave for the period between this past July and August. The count for this wave is critical to determining the larger structure. Based on subsequent market behavior and socionomic observations I will go into later, I think this is the right count. Of course any insight or discussion of this point is greatly welcomed.
I expect that the pull-back of the past few weeks will likely continue through mid November, until a three wave corrective form has been completed. The bottom line resistance for this correction should occur at either 12,800 or 12,400 in the DJIA. If the market continues to move down into the eleven thousands without an identifiable upward "b" wave, it is possible that a much larger correction is in store.
(Figure-1)
I am placing the key point for this determination at 12,030, as the entirety of wave 4 (black) should limit its downside to wave iv (purple) of one smaller degree. After the market bottoms at that point. I am expecting one last bull-market push into next year, at which point, a major top will be completed at [1.618 x (length of [A] (black))]. Thus I believe the final peak of the market will be in and around 14,216. Note that this nearly perfectly level with the 2008 bear market failure top.
(Figure-1)
(Figure-2)
(Figure -3)
This chart, represents what I think is the most likely wave count and future market action on the daily scale.
2. Socionomic Indicators
The second reason this count is likely valid is because the turning point within the past few weeks has been accompanied by some major socionomic indicators. The first major indicator in my mind is the hotly contested race for the Presidency. Incumbents generally face a tougher shake when the market (i.e. optimism, pessimism ratio)is turning into or in the midst of a bear market. This effect can be seen in the past with such examples as President Nixon and Carter. On the other side is market growth (optimism growth) which allowed for the likes of Reagan, Clinton and G.W. Bush.
More appropriately G.H.W. Bush's run for a second term was stymied by a fairly flat running correction through 1991 and 1992. Assuming for a moment that the markets, mood and politics, are correlated, even a downturn within a larger bull market wave sequence will parallel a difficult road to re-election for the incumbent. I will make the prediction that this incumbent will not win re-election if the market continues to pursue a bearish correction through election day. This prediction is slightly clouded by the fact we are still moving upwards toward the top of a primary degree bear market correction. The question is whether social mood is generally at a turning point, or whether this is merely a blip on the road to the completion of intermediate wave 5 and primary wave [C]. Those waves will likely occur sometime next year.
While the latter social events and trends are similarly indicative of a bull market failure and ensuing bear market drop, it is key to point out, that PSY's Gangnam style, with 580 million views it is currently a pop culture phenomenon, and has followed the more negative pop-songs in terms of its growing popularity.
This is essentially the same type of music and excitement associated with the "bubble-gum" styles which present themselves near the top of bull market sequences. Similar energetic and flamboyant (bubble-gum) sound, has been seen in the bull market tops of the late 20's, mid 60' and the late 90's.
The absurd popularity of "Gangam Style" is possibly indicative of the transition from an optimistic bull market to the new intermediate wave bear market, or simply a reminder that the larger primary wave structure is likely still bullish through next year. I will expect to see another shift to optimism in music after the current bear market correction completes its intermediate corrective decline.
3) The rising popularity of Carrie Underwood's "Blown Away" in the country music charts represents an expansive american population. This music video strongly incorporates sounds and themes of a coming storm combined with abusive and failed parents. The response from the songs protagonist is to pray that her house is effectively "blown away".
4) The story and strong of sentiment regarding the drug-enhancement scandal surrounding cycling legend and american icon Lance Armstrong has coincided with the market turn of the past few weeks as well.
In closing, both the wave count I have provided and the corresponding and consistent indicators of mass social mood, support the hypothesis that the market will continue this current downward correction through the elections and into November. Moreover, it supports the hypothesis that we are growing close to a major corrective-bull-market peak.
Best,
W
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