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Now for the good news that is central to the LWD 2011 stock market cycle forecast. The late great
market timer PQ Wall was the first to recognize that every business “Kitchin” cycle subdivides into
nine smaller cycles, known historically as the 20-week cycle. In The K Wave (1995) this cycle was
rechristened the “Wall” cycle in honor of PQ Wall, since he also recognized that a Wall cycle is a
miniature long wave, but that is another subject.
Those familiar with PQ Wall’s work will recall that he proposed that the nine Wall cycles in a
regular business cycle come in three sets of three. These three sets of three Wall cycles often clearly
appear on a market index chart. The rule of third last and weakest makes the third Wall cycle
decline harder than the other two in the three sets and tends to show up clearly on a chart, which
was what occurred on July 1, 2010. That outsized decline in the S&P 500 into July 1 clearly stands
out as a third last and weakest Wall cycle.
Coming out of the Wall cycle bottom on July 1, 2010, Wall #4 has managed to make a new cycle
high. The fact that global markets were able to make a new high, facing the undertoe of a global
long wave debt collapse, is a very positive stock market cycle development. Sure, it was the most
government sponsored and supported Wall cycle in human history. Government’s and central banks
spent billions if not trillions in your money, your children’s money and your grandchildren’s money
pumping and propping it up. It is running long. A large portion of the market rally is real. How
much chaff and how much wheat are hard to determine, but the market did print a new high and
took out the important 1228 target in the S&P 500.
Here in early 2011, global stock markets are now sitting atop the great rally from the Kitchin cycle
lows in March 2009 and at the top of Wall cycle #4 from the July 1 low. This is good news from a
cycle perspective, because it means that the U.S. S&P and most global markets got to new highs not
just in the Wall cycle but in the second set of three Wall cycles (the 2nd Kitchin 3rd) in this final
Kitchin cycle of this long wave. That is no small feat. This new high suggests the upcoming winter
cycle bottom will be milder than it otherwise would be. If the final years of this long wave cycle
were going to be a worse case long wave scenario, markets would not likely have been able to rally
to a new high in this second set of three Wall cycles.
There is no doubt that the rising economic force of emerging markets are allowing global markets to
rally to new highs this far into the final business cycle of a long wave winter season. Many of the
S&P 500 companies and other developed countries major companies have a large and significant
presence in emerging markets and are major exporters to the emerging markets. Emerging markets
are real and powerful long wave spring forces. The end of the long wave winter was delayed, but
the coming long wave spring that will be driven by emerging markets is itching to get going.
Most developed global markets will follow the direction and cycle trends of the S&P 500. The
emerging market will stay one-step ahead of developed markets. It appears as if key emerging
markets entered new Wall cycles between mid-November and mid-December, while developed
markets have yet to bottom.
It would be wise for all investors and traders to ponder the rise of emerging markets. Just in the
BRICs, a large majority of the 2.5 billion citizens are hardworking, capital forming, and aspiring
global middle-class participants. The implications are truly staggering; they are and will radically
change the world.
The smaller stock market cycles, specifically the Quarter Wall and Wall #4, is overbought and
topping out. A sizeable correction is in store, likely into late January to mid-February, which will
produce the bottom of Wall cycle #4. Out of this low Wall #5 has a chance to rally to new highs,
because it is the second Wall cycle in the unfolding set of three. The second Wall cycle in a set
typically rallies to a new high. The high of Wall #5 is expected around the May target, whether it is
a new price high or not. That will likely be the final high in this final business cycle of the long
wave. A rally to a new high in Wall #6 will be a run against the clock of the ticking global long
wave debt bomb. When it goes off, it will drive the global stock market cycles down sharply into
late 2012.
They are more than a few shoes that could drop and wipe out the rally of Wall #5, so stay tuned to
the important price supports. The exact price and date targets of the cycles are reserved for
subscribers to The Long Wave Dynamics Letter. One subscriber said the Fibonacci grid price
targets, from the Level 1 grids down to intraday grids, are like reading sheet music. If interested,
you can read What LWD Subscribers are Saying.
I would be remiss in not pointing out that the S&P 500 price target of 1278.95 is the inverse golden
price target in the current Level 2 Fibonacci Dynamic Web price grid. These are the sort of targets
used to indentify precise entry, exit and stop loss targets. Note that the top tick on Thursday the 6th
was 1278.16, in Quarter Wall and Wall cycles that are overbought and topping.
In conclusion, the good news is that the rally in global markets in this final business cycle of the
long wave is a gift from the hard working citizens of the emerging markets, who will lead the next
long wave spring season advance. And of course the hard working central bankers of the world.
Take this cycle topping opportunity to prepare your finances. Consider yourself warned. The long
wave spring is coming, but a late long wave winter blizzard lies on the other side of this false spring
season.