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Saturday, May 30, 2009

A Supercycle Top





This is my first attempt to show the Supercycle from 1932 to the year 2000. As a member of EWI, this is their count (Prechter) and most all EWI members would agree with it as I do. I am not sure I have the last wave 5 labeled as they do, I threw the subwaves together on the fly and have never really looked at it in detail. The point is that it was an extended 5th wave peak. See how many wave 5's there are up there?

Pretty much everything above upper purple trendline is borrowed money on borrowed time so-to-speak. The massive credit bubble that was inflated over the past quarter century has allowed a great many millions to live life above and beyond what was normal. The bills are due of course.

The 2003-2007 rally was a b cycle wave rally or an expanded flat (that is the theory).

I posted the same chart in "un-log" scale so you can see that it really got out of hand these past 25 years. Problem is everyone is trained to think this is "normal". DOW 8000 is good "value". Oh yeah? What makes you say that? You can also see that an expanded flat in unlog scale with a ending "c" wave drop down to less than 1000 DOW doesn't look so goofy does it?

Why would all those billions and trillions of little 1's and 0's in a computer mean anything? Can they feed your cat? Can your cat eat a computer disk? A fiat currency system is built upon faith and faith alone.

That less than 400 DOW target is EWI's and not mine. I posted it to show you what they think and they study this stuff for a living. However if you look at the unlogged version of the chart, that retrace back to the previous subwave 4 spot of 1975 is not so out of the question is it?

The orange III (circle) is the top of a Grand Supercycle from approximately 1789 to 2000. Its the "meat" part of a Millennium wave that is estimated to start in about the year 1000 A.D. in the West. This means that mankind will go on a massive sideways correction period that will last well beyond our lifetimes. Basically economic activity has peaked for many many decades even centuries. Mankind's progress goes sideways. But depending on what year your in, it will go down drastically in Grand Supercycle corrective wave IV (circle).

In that view it kind of makes sense. Mankind in the past 250 years has populated most every part of the planet and exploited every resource. Sure we can make cool new toys but I think a world 250 years from now will not be so "gee whiz" to us as it is if people from 250 years in the past could visit us now.

There are great "plateaus" in the progress of mankind. It makes sense we have reached an apex of sorts and now will tread sideways in a long period of stagnant economic activity. But considering the size of the correction, we can only hope our way of life survives.

But back to the charts: If the cycle from 1982 to 2000 took 18 years to build, then it may take 18 years to un-do. Maybe we get that DOW 500 in 2018 I just don't know.

A chart of US National debt, indeed total world debt, looks like a parabolic firestorm thrust high into upper cumulus of the stratosphere. It stands that high on faith and faith alone. Faith gets broken in P3.

Stay tuned.

38 comments:

  1. The only problem I have is the way dollars are being measured. If the index was priced in gold it would make more sense. But when you price the index in dollars that depreciate on average 3-4% a year AND with prospects of a massive devaluation. It wouldn't make sense to project $400 for all 30 stocks on the DOW. Nevermind earnings, that's just a fraction of these companies intrinsic value. Exxon by itself would be worth $400. So these supercycle charts should reflect some other measure and not nominal dollars.

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  2. You know, the latest Eurozone inflation data supports your thesis. Have you tried measuring the supercycle for FTSE, DAX, or other European exchange?

    www.debtsofanation.blogspot.com/

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  3. Beautifull chart, it seems forever buy&hold times were gone long time ago, in fact more or less they ended for techburst in 2000. Return has not been so great since as many think it was - I would not call 2003-2006 for bull market - it was more like a zigzag upwave, pretty lazy one, but it was real bullmarket for commodites; wheat, oil etc. but not for general market. There´s allways fire somewhere.

    Whatever is the scenario plays out, it also shows that we´re in channel top area and there´s no room for upside. Predicting future a real far away is interesting, same mistakes happens - humans won´t make any new one´s, they all are seen before. That is what chartpatterns also presents every day.

    Interesting socioeconomical details occured after 37 crash as next we got; WWII, Hitler, Stalin and some other nice folks.

    So, what it will be this we will see.

    Construction index is also interesting. In back history once it was pyramids ended one bull. Another one was rome imperium. Chrysler building in N.Y and WTC towers ended one cycle as well. Dubai tower left top at this time with 861 meter highrise, so, I suppose it was very much oil issue at this time.

    We could zigzag in here for many years as sideways with that W2 progressing no-where at the end of the day, trading sideways just like pasted weeks with SPX.

    If we spread a bit subject, I personally think Maya calenders are also interesting as they counted world to end 2013. At least rising moon & full moon effect is interesting allways in stockmarket - everything goes a bit mad and wild.

    1937, 1962, 1978, 2003 - a lot of interesing fibonacci years occured as turning & ending big waves in market also.

    Farming, wood, forest, food, fish, clean land, extraordinary lanscapes, clean water - perhaps some bullish areas on future.

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  4. The only problem with your theory here is technology has progressed at a logarithmic pace.

    Moore's law validates this.

    So the likelihood is much greater that we're about to see remarkable technological improvements in our lifetimes. In fact, we may have less in common with humans 30 years from now than we do with humans that lived 300 years ago.

    Economic prosperity is a different matter, but I would wager heavily the world is very different by the time this bubble/malaise/wave/whatever plays out.

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  5. Hi Daneric,

    Thanks for posting these super-cycle charts and comments. It's definitely thought-provoking and useful to see the really-big picture -- and to weigh the arguments for how the future may unfold.

    From a trader's perspective, how do Prechter and you plan to handle P3 and P5? Will shorting stocks or ETFs even work in such a terrible crash? If the U.S. dollar is doomed to devalue to half or a quarter, and hyper-inflation takes off -- will stocks be worth less or more in dollar terms? (I've heard opposite arguments.)

    From a sheer suvival perspective, what do Prechter and you advise for P3 and P5 -- just buying gold, guns, and gardening materials (as some recommend)?

    Please describe your and Prechter's forecast of living standards and social-political upheaval IF the DOW actually crashes from over 15,000 to under 400.

    I'd be very interested to consider how you and Prechter think daily life will be for the average American (and the average Chinese) citizen IF we crash that fast and low.

    If these topics interest you, please consider writing about these issues in future posts on your blog. Thanks.

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  6. How nice, Dan. I also made a chart of the Dow at TOS about a month ago but never posted it. I figure, and it seems you are also, that the line connectng the top of wave 3 and the 2000 lows will stop it. Somewhere above 10,000 depending how long it take to hit it. Not saying it must, but that line could set the upside limit to P2.

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  7. Correction: I meant "over 14,000" (not 15,000).

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  8. Moore's Law doesn't understand Hubbard's Peak.

    Both are correct. Technology will save a few humans, while the rest suffer in poverty and famine from the lack of fertilizer (oil).

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  9. I join folks above the chart must be adjusted for inflation.

    I'm not sure it's easy to do. Gold was a bit volatile.

    Maybe just google for inflation-adjusted dow and use that chart.

    Roxy

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  10. I saw "Supercycle" thread today. I am very impressed by the theory.
    I started at thread on skf called "okay this is surreal". In about two hours we have about 32 posts and many of them 5 stars from the good posters left on the board. of course, all the credit goes to dan for coming up with the commentary and the charts and the bright people left on skf board who wrote comments.
    please check out the thread.

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  11. The only thing that can change the social mood and trigger P3 is fear. The fear of death from diseases (e.g H1N1) or some kind of object from outerspace hitting the Earth that will lead to extinction of humanity.
    Remember, a selloff can be fast and furious. Just like the crash of 87 (predicted by Prechter)as we predict P3. So just get ready for a ride to space using SDS, DXD, QID, TZA, FAZ, SRS.

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  12. I guess one could look at that as a scary chart. Or maybe it's just change. The time for America, for western civilization has come and gone. All societies, all civilizations come and go. And now it's our time. Humanity will survive but the world will not look like it does today. Unless we unlock the secrets of nuclear fusion and unlimited energy then we will spiral down the drain of peak oil. We literally EAT oil. Without fertilizer and the means to transport food to market humankind will reduce back to the natural caring capacity of the earth. Some say that's around 1 billion people. So globally a 70-80% die off. That's what that chart portends.

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  13. Seeing the Dow's generational rally w/o log price scaling is nothing less than astonishing.

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  14. Also, the people who think that they can profit from this are equally delusional. What we are talking about is total systemic breakdown. There will be no ultrashort funds because there will be no underwriters because there will be no banks or financial system or government or societal structure period. You will be incredibly fortunate if you can find food to eat. And for all the people storing up on gold and silver I have news for you. You can't eat metal either. It really is high time to stop being childish about this and take a good hard look at the chart and be honest about what it means. It's over. 'k? It's O.V.E.R.

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  15. Hi Daneric,
    Remarkable how well your EWT results conform with
    the Kondratieff wave cycles. Unfortunatelly he was
    executed in the Soviet for his findings. I hope you will be around for a while and share your results with us.

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  16. In reply to SRS Player's question about "What do you and Prechter advise for P3 and P5?" Robert Prechter has written a very detailed answer to that question in his book "Conquer the Crash - Surviving and Thriving in a Deflationary Depression". I found it to be extremely well written, well researched, and very practical in terms of what to do as P3 onward unfolds. He discusses EWT, Kondratieff cycles, Fibs, etc. The second part of the book is devoted to practical steps to take to prepare before the crash unfolds, topics such as protecting your assets, the social climate, how to invest, etc. Very worthwhile read. It was written many years before we even started to crash - things have unfolded just as he forecasted. We are taking his recommendations quite seriously. Prechter has commented on the risks of using inverse ETF's during P3. If the brokerage firms become unable to pay, paper gains mean nothing. I would also recommend Martin Weiss as someone who sees the big picture clearly and has recently published a book related to your questions. Best of luck to all - it is going to get ugly I fear. KM

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  17. Kath,

    Thank you for your thoughtful, detailed answer!

    GL2U2

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  18. I guess the reasoning is off the chart, but is it possible that the 1935-2007 period was a big purple (III) and not a big purple (V)?

    Thanks!

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  19. Hi Guys,

    Clearly the easy way out is a much weaker Dollar, this would support stocks and help USA to repay the huge debts. However, this is why I think we will see the opposit, a much stronger Dollar and this will create maximum pain. The reason why stocks have fallen so much is partly due to the drop in earnings and expectations. However, a much stronger force is that this market is an easy way to cash. So when cash is needed stocks will be dumped. Another factor is the 9-10 times leaverage in the banking system, and if SP500 should trade unleveraged then we could see 1500/10 = 150 !! We can just look at Japan where the Nikkei topped at 40.000 back in the 80'ties ... and the yen is much stronger!!

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  20. I look at this in one of two ways.

    Either GBT's scenario will play out if we have a crash of this magnitude and we should all be buying guns and ammo and heading for a remote cabin in the wilderness so others don't try to kill us as it will be complete anarchy. There we should be prepared to hunt and grow crops to survive.

    Or, once you adjust the chart for inflation and take into account the fact that the run up in the past 30 years is due to the incredible increases in productivity since the 80's as a result of technological innovation this ends up being a long, but survivable economic downturn.

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  21. i think its more likely we have a trading range between 7K-14K for the next ten years (somewhat like the 1965-1982 on the chart above)

    instead of 70-80% die-off what if some things go right? this planet can easily support 2-3 times current world population given sane production and distribution methods...thats a lot of consumers

    doom and gloom is difficult to make money on but fun in a sick kind if way...cheers

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  22. Looking at the fundamentals as of now, I think market has more downside to go but then relying on EWT on such a longer term scale is not my game.

    If(IF..Only If) Market does not behaves like EWT count, EW counts will be changed and this is what has been done so far when counts go wrong. It is easy for EWT to go wrong and such a multidecades counts mistake can cost someone really big.

    Keep this EWT in back of your mind and trade technically looking at the charts rather than looking so far!

    I still appreciated Dan's work and he is great on his short term counts. Even dan will not bet his home, farm and everything on this multidecade count :)

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  23. I agree with Victor's comment. Due to hyperinflation being perpetrated by the FED, I think it limits the downside in terms of paper dollars. Too bad those paper dollars will just be worthless. So, we may not ever see DOW 400 in terms of actual cash due to the inflation being created. A chart of the DOW priced in Gold or Commodities would present the best Elliot Wave count. I wouldn't be surprised to see the DOW not break the recent lows in terms of paper dollars which would really throw our Elliot Wave counts into confusion. But using a chart priced in Gold or Commodities might unfold in a beautiful Elliot Wave pattern as expected.

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  24. Overall, Dow is finished...

    Sell the rally and go short

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  25. In the end, I dont think China and India can support the collapse of the Western world. So, lets pray.

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  26. It took 1 year for Dow to erase all gains from 2003-2007

    It took 18 years for Dow to build the Wave IV to V.

    Lets do calucations 18/4=4.5years

    It took another 4.5 years for Dow to go back to 1000 which match perfectly with what Prechter has predicted(2013-2015). Lets just enjoy the next WAVE.

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  27. My view is that we are following the 1929 market except in weeks not days. Hitting 930 is right on target 9 weeks off the low, 29% of the 5 wave sell off (9 days off the 29 low 29% of the sell off) this correction should end by mid june with a rally up to 1000 ending in Sept (999 on 09/09/09?) but the final low wont be for years , much like Japan which is going on 20 years
    Max Cherry. http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=3&mn=0&dy=0&id=p31055921046&a=163800550&listNum=12

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  28. Deneric,
    I disagree.
    Firstly, Flat corrections indicate strength of the market not weakness. This is typically horizontal move while your view assumes Armageddon of some kind. It does not have “right look” for Flat structure.
    Elongated Flat is possible but they appear almost exclusively in triangles (see. G. Neely “MEW” chapter 10-5) thus for me it less probable option.
    “Right look” for the Flat is now, i.e. C ended at February lows.
    Secondly it is not obvious that the move from all time highs was impulsive. First segment from X 2007 to I 2008 can be easily counted as “three” being wave A, than Flat correction as B till V 2008 and finally impulsive decline from 13k points to lows at 6,5k points. This would make C wave a three waves structure. The only three wave C is C in triangle structure.
    Thirdly you have elected very charismatic leader who may prevent a drastic downturn in social mood that would enable such a dramatic crash as on your charts. There is great amount of hope that can be easily transferred into confidence when the economy recovers.
    Last but not least - your count is identical with Prechter's one and this should light red lamp to any Elliottician as this guy is excellent market analyst but rarely his count is correct in the long run.
    Regards
    LeM

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  29. than = then
    sorry I am not native speaker

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  30. wooow Dan...

    Shouldn't Super Cycle A just break the 1932-2000 channel and not breaking the other one?

    Going for 500 on the Dow at the first try? I was only thinking, that by EWT the lower trend line would only be breached by Super cycle C.

    My idea was, Supercycle A, breaking the first supporte and then bottom around 1500-2500.

    Supercycle B then going to test that trendline around dow 5 or 6,000 and then Supercycle C finally breaching the trendline and putting us into triple digits

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  31. By the way just to inform others, Prechter does indeed have a count for DOW in GOLD... He says it's of extreme importance to have that chart in perspective, but even in that chart we have more than half way to go...

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  32. Anon said: "...this planet can easily support 2-3 times current world population..."

    That's Larouchey crazy talk. The babbling of a senile old man. We can't even feed the people on the earth now.

    There's two ways to handle this. WE can handle it through sane rational behavior like cutting down on population growth, resource depletion, and planet-wide ecological destruction, OR, we can let nature handle it. And nature is a bitch mother. Mean, brutal, and unforgiving. So which is the sick path? Denying reality and continuing to live in a fantasyland which never runs dry, OR, taking charge of our future and making changes NOW so that future generations (and ourselves) don't have to suffer?

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  33. I quoth: "Elliott contended that every fith wave extension is doubly retraced i.e. followed by a first retracement to near the level of its beginning and a second retracement to above the level at which it began. Such movement happens naturally due to the guideline that corrections usually bottom in the area of the fourth wave; the second retracement is the next impulsive wave." Later from Ch. 2 of EWP: "The most important empirically derived rule that can be distilled from our observations of market behavior is that when the fifth wave of an advance is an extension, the ensuing correction will be sharp and find support at the level of the low of wave two of the extension."

    Therefore, it is unlikely even in Prechter's own work for the bottom to occur as depicted. More likely, a low around 5500 will be the low and part of a large triangle that will take up a great deal of time before we enter hyperinflation.

    Technology is by its very nature DEFLATIONARY. Every advance that man makes should result in deflation. The only inflation influence is monetary. Ex. the computer you are working on (no matter how old) would have cost more than your house forty years ago. Your car is probably ten times as safe, can go 50% faster and probably uses 1/3 the fuel of a car from 30 years ago.

    We have more "stuff" because deflation has allowed us to buy more stuff. However, inflation robs us of future buying power and we will at some point embark into a period of hyperinflation that will strip everything from those holding cash and not invested in hard assets. And then we will truly see how far UP the rabbit hole really goes.

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  35. Everyone has forgotten how bearish Prechter was at the 1982 low!!!!

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  36. Gmunni - even the EWT have not answeed my questions regarding 5th wave extensions & double retracement rule - (maybe the last extension did start around 666 - of course a full retracement back up will blow everyone out of the ater

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  37. Anonymous I agree. there are many "holes" in EWT projections.
    for starters- the extra high caused by the easy 'credit" is assumed will disappear. It affects the charts it that they go higher than expected- it cannot suddenly NOT be accounted for- it will NOT vaporise due to credit implosion.. some countires in the world, like australia actually did hand out paper money for spending. If this extra money or easy credit does affect the upside of the charts as is shown historically for EWT to hold, then it cant suddenly NOt be counted but that amount and the extra should be included in thecharts.
    I justr started looking at EWT and decided that the best approach was to look at the US dollar index, or if you like the EUR:US and CANADIAN: US and AUD:US and etc .. ie the inverse.
    According to me the US dollar is in wave 5 of a wave 5. I would love to know where it is in a loarger cycle!
    I emailed EWI but also did not receive a sarisfactory answer as to why they think the wave 5 of wave 5 will not be an extended or long wave. Why do they think it has already ended at just bel;ow the wave 3 bottom of the immediate cycle, and why arent they looking at larger cycles of the US dollar index. I suspect they are trying to fit the elliot waves to their per theroy.. which is NOT the way to interpret waves. I'd apprfeciate it if anyone can point me to a US dollar index study that look at the larger cycles . I have looked at one cycle from arfound 200 or 2001 ish downwards.. we are in a wave 5 I think andf also the one this year.. again in a wave 5.. or arguably just finished ( from EWI JUly forecast).. any comments appreciated

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  38. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

    Lucy

    http://forextradin-g.net

    ReplyDelete