Global Contagion

By: Joseph Russo | Sat, Apr 15, 2006
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"A highly deceptive global contagion of the bullish kind appears well underway"


The basic concept of meeting the demands of large growing populations with finite world resources has always been one of extreme challenge and controversy.

The prospect of accommodating such demands becomes even more challenging when sustained bursts of regional growth at the periphery manifest themselves upon pillars of artificial demand engineered from the center.

Competition for distribution of wealth and resources appears to be the basis from which many of globalizations challenges currently resonate.

A perceived, never-ending supply of cheap goods and labor tied to exports together with an abundance of natural resources embodies many of the power structures at the periphery.

In kind, a perceived never-ending supply of consumers and credit tied to imports together with an abundance of military force embodies much of the power structure at the centers.

As competitive dynamics mature, the prospects of sustaining such arrangements indefinitely diminish considerably.


We highly recommend the reading of two rather illuminating editorials that have inspired this piece, and may serve to bolster its technical summary.

Dr. Marc Farber who eloquently explains the continued manifestations regarding nominally perceived vs alternative value benchmarks authors the first, and the second is from Cliff Droke, who brilliantly aligns the forces of powerful economic cycles with the fundamental challenges facing the controllers of America's financial destiny.

Cliff Droke: Global Economic Order

Marc Farber: Anatomy of Bear Markets


All of the charts presented are in nominal terms using classic tenets of Elliott Wave Theory. The analysis reflects both the nature and maturity of wave structures as interpreted by the author.

Our technical contribution and comprehensive subscription service is designed to assist traders, investors, and portfolio managers in navigating many of the unique technical conditions surrounding current market patterns around the globe.

The one tenet of Elliott Wave Theory that surfaces time and again in our "contagion" analysis is that of the fifth wave extension at intermediate degree or higher.

The propensity for fifth waves to extend has been quite rare in recent decades. Back in the late 1800's through the late 1930's, there appears to be sufficient evidence that stocks tended to stretch their final runs.

It also seems to have been Elliott's general preference to anticipate that the fifth wave of an impulsive advance would often pack the biggest punch by way of "stretching" or "extending."

From the '40's through the 80's this has not generally been the case. Today, it is more common to anticipate that it will be the "third" wave and not the fifth that holds the higher probability of extending the stock indices.

Given the price action across a broad array of global equity indices, it is difficult for us NOT to consider the probability that extended fifth waves are currently under way.

Just how far along they are in development remains somewhat elusive. In some markets, the extensions appear ripe for termination at any moment, while others display clear evidence of more room to run.

Monitoring the unfolding of such extensions is quite challenging due to the perplexity and multitude of sub-divisions required to complete the sequence. As always, the larger periods are dominant, and what may count out as a satisfactory sequence of completion on a daily chart may well end up disappearing into the larger time frames subsuming rendition of the pattern in force.

The probable cause of its development may reside under the auspices and repetition of exponentially larger and larger injections of global liquidity at numerous junctures of crisis spanning 10-20 years or more.

Below is an idealized extended Intermediate Degree (5) terminal:

The following pattern example is a more realistic representation of how an extended (5) of Intermediate Degree may unfold in real time:

Now it is time to explore some of the recent Global Contagion in real time.

A Glimpse of the Top from Down Under

Since the 2004 wave (4) print low in 2003, the ASX has gracefully ascended with fewer and fewer pullbacks in five waves of Minor Degree; marching straight toward the top of its trend channel.

Perpetual Carnival since late 2002

Of interest regarding the Bovespa, is the prospect for the currently topping Intermediate (5) to be terminating only that of Primary "3".


India continues to display a relentless advance- virtually absent of any meaningful corrections since 2005. The fifth wave extending in the BSE appears to be one of Minor Degree. The completion of Minor x5 will mark an extended Intermediate (3) terminal. Note the smaller narrow trend channels drawn from the 2005 lows. Price has climbed near the top of this trend channel and has already begun to descend.

That GIANT SUCKING SOUND seems to have bred one heck of a
Bull Market for Mexico

After kicking and clawing its way through Intermediate (4) and Minor 4, the Bolsa has done nothing but ascend in stellar fashion since the 2002 low marking Minute '2'. Of immediate concern are the two divergences occurring against the '06 all time highs in both the RSI and ROC. Note the two key power up trend lines in light gray and blue. Should they both hold- the top of the trend channel remains very much in play.

RED BULL .... A bull like no other!

We will let the chart of the RTSI speak for itself.

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Joseph Russo

Author: Joseph Russo

Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology

Joseph Russo

Since the bubble, 911, and the 2002 market crash, Elliott Wave Technology's mission remains the delivery of valuable solutions-based services that empower clients to execute successful trading and investment decisions in all market environments.

Joe Russo is an entrepreneurial publisher and market analyst providing digital online media solutions designed to assist traders and investors in prudently and profitably navigating their exposure to the financial markets.

Since the official launch of his Elliott Wave Technology website in 2005, he has established an outstanding record of accomplishment, including but not limited to, ...

  • In 2005, he elicited a major long-term wealth producing nugget of guidance in suggesting strongly that members give serious consideration to apportioning 10%-20% of their net worth toward the physical acquisition of Gold (@ $400.) and Silver (@ $6.00).

  • In 2006, the (MTA) Market Technicians Association featured his article "Scaling Perceptions amid the Global Equity Boom" in their industry newsletter, "Technically Speaking."

  • On May 6 of 2007, five months prior to the market top in 2007, though still bullish at that time, he publicly warned long-term investors not to be fooled again, in "Bullish Like There's No Tomorrow."

  • On March 10 of 2008, with another 48% of downside remaining to the bottom of the great bear market of 2008-2009, in "V-for Vendetta," using the Wilshire 5000 as proxy, he publicly laid out the case for the depth and amplitude of the unfolding bear market, which marked terminal to a rather nice long-run in equity values.

  • Working extensively with EasyLanguage® programmer George Pruitt in 2010 and 2011, the author of "Building Winning Trading Systems with TradeStation," he assisted in the development of several proprietary trading systems.

  • On February 11, 2011, he publicly made available his call for a key bottom in the long bond at 117 '3/32. Within a year and half from his call, the long bond rallied in excess of 30% to new all time highs in July of 2012.

  • For the benefit of members and his general readership, he responded to widespread levels of economic and financial uncertainty in the development of Prudent Measures in 2012.

  • He publicly warned of a major top in Apple on October 26, 2012 in the very early stages of a 40% decline from its all time high.

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