Che Guevara and Primary Wave Two

Eredeti változat magyarul: Che Guevara és a második hullám
Elliott és a többiek, 2010. január 25.

Three months ago I posted a discussion on hope and the way it shaped the rally from the 2009 lows. The Newsweek cover like this (below) recalls the compelling state of mind which made me write the original Hungarian article back in January. Even with the details that are dated one might find the post timely and get a sense of how the markets ended up here.
BTW, excessively optimistic magazine covers signal oncoming major turning points, don’t they? Prechter once alluded to them as the "cheerleaders for the bull market in the face of historically bearish conditions".

> If Elliott’s theory draws its conclusions by starting out from the global social and psychological processes, the stock index charts and the moods filling people’s lives go hand in hand. We can accurately apply this relationship to forecasts in many areas such social events, fashion and politics as well as finance and investments.

Our analysis of the American stock market suggests that it is rallying a second wave correction of the primary degree downtrend. Elliott sums up the wave personalities for us. You can obtain his characterization of every single stage of an impulse in books dealing with the theory, but referring only to the primary degree of an uptrend in a bull market. They do not explicitly characterize the waves in a large degree downtrend.

There is no need for great creativity to produce the wave personality of the second wave up, correcting in a large degree bearish impulse by switching the emotions and the orientations to the opposite (poles). There would be smaller significance of such a ‘flip over’ at a lower degree of the trend, but at this degree when a single wave can extend for even a year, the time span is adequate to identify social events and processes (with such indicators as magazine covers).

Here you are, take this chunk from Frost and Prechter’s book with some twists:
- Second waves often retrace so much of wave one that most of the painful losses are gained back by the time the rally ends. At this point investors are thoroughly convinced that the bull market has returned.
The fact that certain industry groups show just as good fundamental background and promising tendencies as they did around the preceding (absolute) peak underpins this belief. Recent macro data seem to improve, too. The underlying trend considered up but does not carry to new high.
Players in the market are characteristically full of hope and do not deal in the previously accumulated assets over the market. Second waves often end on very low volume and volatility, indicating a dissipation of buying power, right before yielding their place to the third wave. -

So far you can understand the excerpt, so far the theory goes. I have not shown it between quotation marks since it is exactly the inversion of what you can in truth read in the book.

By spring 2008 an artist, Shepard Fairley designed a campaign poster for Barack Obama. The one that some months later grew into a movement and won the presidency. From communication point of view, it hit the nail on the head. 'The American Dream' went down like ninepins and at that time the society was waiting for one word. HOPE!







Beside his sense of eloquence, Obama owes his presidential chair to this poster and everything else including the supporters come only after it. Experts would argue against the insight above by pointing out the making the most of the opportunities of the social media in order to mobilize the youth.
But if think about it, they could argue for this poster, since it was just what Obama needed to reach and accost this generation.
You spotted the parallel with Che Guevara, didn’t you? What social layer honors him as an icon? Clearly, it is the revolutionary youth, isn’t it?
Obama simply grew up in their eyes as a superman.

By the time he was inaugurated the economy had got under the pressure of necessity, and his range of decisions got restricted. Holding out hope in this stage roughly means sumping the pit that we sink into even deeper. You can try to bail out everything and everyone, stick to the old school model which is unserviceable. All this happens only for one reason, namely, the society and the politics are not aware of how correctly apply the stop loss. Instead, people keep saying, ’The worst cannot happen. Somehow we’ll be able to get away with it.’

Yet, what can they expect from this one man, even though he is the most influential man in the world? They drew their hope from him, and here is the movie illustration about it. (Click and play the first 2 minutes of the JibJab video!)

Fix the USA! Eh..

As usually happens in such situations, over-promising leads to disappointment, and the public wreaks its anger on policies, the political system and structure which have not fulfilled their hopes. This week (rem.: week 4, in January 2010) the upheaval came full force where the voters sent word to the Embodied Hope. The Massachusetts election ended up with the democrats and Obama failing to win a pivotal place in the Senate.

Presidents and governments in any nook of the world lose some of their popularity in the first year of their governing. Yet, this time it can be worth assessing from a somewhat different perspective. A process has set off. The epoch of hope characteristic of the second wave has begun to get closed by something else - feeling. This feeling can comprise being divided, uncertainty, weakness, impatience, sedition, defection, dejection, or in some cases apathy.


The week had a surprise in store about the markets directly, which who had hopes on stock markets consider a threat. The president indicated he would like to allow capital laverage of only 10 times, whether it respects independent foreign exchange traders or the Goldman Sachs gigantic trading desk. It's as if the market got a margin call from Obama. The media praised the move in a banner, ’Obama is regarded as the one against business by most American investors’. Here you are!

Such incidents betray that something has been changing slowly and new emotions have been taking over the dominant position of hope in social mood, which thoroughly alters the global character of markets that was typical over the last ten months or so.