Equity Markets Approach Critical Mass

By: Joseph Russo | Thu, Sep 14, 2006
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Critical Mass:
[Origin: 1940-45]
Function: noun

  1. A size, number, or amount large enough to produce a particular result
  2. The minimum amount (of something) required to start or maintain a venture
  3. An amount or level needed for a specific result or new action to occur
  4. The number of people needed to trigger a phenomenon by exchange of ideas
On a time/price relative basis, the Dow Jones Industrial Average is rapidly approaching a tipping point toward igniting either a positive Critical Mass, or succumbing to a Late Majority Plateau. Such events may unexpectedly rocket the Dow toward the 20,000 level - or incite a crushing cyclical bear market. It remains plausible that we get a rather challenging dose of both.

Before we present our long-view chart analysis relative to Critical Mass, we thought it prudent to share a bit more background on the concepts surrounding this rather unique phenomenon.

Example: Government policy will change when the number of protesters reaches a critical mass.

More about Critical Mass
(Emphasis text is ours)

In 1962, Everett Rogers wrote a book titled "The Diffusion of Innovations," a piece that introduced many concepts that are widely used today (i.e. the classic bell curve of adoption, the notion of adopters segments [early adopters, early majority, laggards, etc.] including the concept of the "tipping point."

Within his work, Everett Rogers defines "critical mass" as the "point at which enough individuals have adopted an innovation (or a belief paradigm) so that the innovation's further rate of adoption becomes self-sustaining." He also notes that his concept is grounded in social scientific scholarship, most notably economics. Rogers offers an extensive analysis of the concept of critical mass, as well as several examples of how the concept may best be put to use.

When something reaches critical mass, an unstoppable shift takes place. For instance, when an electron is increasing in vibration, the moment it reaches critical mass, the entire electron is pulled up into the higher frequency, and nothing can stop it.

For those of you who are fans of "The Tipping Point," you will find it interesting that Rogers explains critical mass as "a kind of tipping point of social threshold in the diffusion process" This was 1962, decades before social theorists and the business community latched on to the 'tipping point' concept.

Valente (1995) notes that critical mass is achieved when about 10 to 20 percent of the population has adopted the innovation. When this level has been reached, the innovation (belief paradigm) can be spread to the rest of the social system.

Is the current world order, together with the global financial sphere approaching another plateau, or are they both on path toward igniting a fresh bubble-like manic episode of critical mass - perhaps on route to rebirthing an entirely new paradigm for the 21st Century?

Diffusion of Innovations Theory:

Diffusion of Innovations is a theory that analyzes, as well as helps explain, the adaptation of innovations. In other words, it helps to explain the process of social change. An innovation is an idea, practice, or object perceived as new by an individual or other unit of adoption. The perceived newness of the idea for the individual determines his/her reaction to it (Rogers, 1995). In addition, diffusion is the process by which innovations are communicated through certain channels over time among the members of a social system. Thus, the four main elements of the theory are the innovation, communication channels, time, and the social system.

Critical Mass and Financial Markets:

We must remain cognizant that critical mass, relative to social and economic paradigms can work both ways. That is to say, tipping points leading to critical mass can be either bullish, or bearish. Determining which bias and the severity thereof is contingent upon two key elements. The first is the prevailing Cyclical Degree of Trend and secondly being the level of maturity within the Elliott Wave Pattern. Accurately assessing The Dynamic Degree of Trend in concert with proper identification of the sequentially designated Terminal Structures within the Elliott Wave Sequence is essential in evaluating the directional bias at which critical mass begins to advance, plateau, or regress.

The Ultimate Chart of Industrial Progress

Below, we have highlighted a rarely observed yearly bar chart of the Dow Jones Industrial Average. We have noted time references pointing toward potential ignition points in the past that have incited conditions of critical mass and the subsequent areas of plateau and regess that follow. We go on to speculate what the immediate and long-term future may hold relative to the current condition and future progress of humankind.

Elliott Wave Technology offers various levels of subscription service for those who are interested in more precise analyses and market forecasts that go beyond that which this article permits.

 

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In addition to interpreting a host of Traditional Chart Patterns and Sentiment Indicators, Elliott Wave Technology's detailed analytics include:

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Is the Dow Jones Industrial Average on the verge of a BULLISH, critical mass event ? Or, might the approach and apparent arrival of such an event simply be marking time with yet another late majority plateau?

1913

The first notable date on our chart is without question the quintessential "big bang" catalyst for both financial markets and the early restructuring of the current World Order. In 1913, President Woodrow Wilson signed the Federal Reserve Act into law.

To this very day, there remains formidable controversy as to whether the adoption of this act was in accordance with the Constitution of the United States of America. Nonetheless, on that date in 1913, the foundations for a new paradigm was seeded.

War of the Words

In this piece, we shall not delve too deeply into the virtuous or virulent effects that the Federal Reserve System may or may not have imposed on humankind.

The Big Bang's Epicenter      ...the Corporate Military Industrial Complex is born

We trust that readers can easily obtain vast amounts of empirical research and argument that has been, and will continue to be aggressively debated relative to the efficacy of Global Central Banking Cartels in tandem with Transnational Corporate Entities. We encourage readers to pursue a comprehensive understanding of all such varied opinions in order to draw their own conclusions.

Aside from the rich fabric, and at often times bittersweet history engulfing the timeline of our study, we will further focus from a chartist's point of view, upon the visually compelling cyclical underpinnings surrounding the technical aspects of this long-standing paradigms progression.

Our chart depicts the remarkable progress of humanity in concert with its unmistakably imbalanced and periodically misguided shortcomings. The price pattern from 1896 shows a sustained and rather robust upward path of growth accompanied only by a few such bouts of notable regress.

Illusions of Grandeur

What is void from accurate representation in our chart however is the profound and negative impact relative to the loss of purchasing power of the currency unit ($USD) under the fiduciary stewardship of the Federal Reserve. By now, it should be common knowledge that since 1913, the United States currency unit has lost more than 95% of its purchasing power. If truths surrounding such knowledge are not yet sufficiently common, they may soon become so, perhaps reaching a critical mass of their own.

Dollar Purchasing Power from 1896                 Dow Jones Industrial Average from 1896

1929

Allow us to speculate that within the sixteen short years from its inception, the Federal Reserve System in concert with the economic conditions and social orders of that time, likely experimented with their long reach of facilitating incentive traps through control of the supply of money issued and credit granted. In the eight years from the 1921 market cycle low to the 1929 print high, the Dow Jones Industrials had just witnessed its first Bubble Top of the 20th Century. That and the pursuant deflationary crash that followed was in large part a by-product of the financial alchemy practiced by the Federal Reserve along side other Managers of State.

There can be no doubt that a negative tipping point of Critical Mass ignited at some point during 1929. The DJIA began to plummet feverishly, and was unable to stop until three years later in 1932. After much trial, and mostly error, we again speculate those in power at the time had finally figured it out. "EUREKA! IT IS OUR MONOPOLY BABY!" and as such... "Those who controlled the Money and Banking System had at their complete disposal the most robust and full spectrum instrument of power with which to control the course of the World Societies, and their inherent Internationally Trade Based Economies." If such revelations were not born of a sincere crisis related, solution based moment of recognition; one has only to assume that such motives were far more sinister and willfully engineered. If so, the architecture for such egregious covert plans was likely to have been drafted with the most horrific of ulterior motives well before to the actual 1913 signing of the act itself. The Fed in concert with then Managers of State, quickly donned their "Jim Dandy to the rescue suits", or "Sheep's Clothing" as it were; in patient anticipation of cashing in from the epic plunder and subsequent bounties. The immense transfer of such concentrations of wealth and power were likely by design, engineered with intent to preserve and perpetuate exclusive reservation of such powers for the most fortunate of elites and their descendants for generations to come.

WMD's, Wars, Destruction & Economic BOOMS      War is good for the economy?

1942-1943

After an impressive five-year rally off the 1929 low, the Dow plummeted once again answering the five-year rally with a five-year decline into the low of 1942.

Thirteen years from its peak, the Dow broke out from a secondary base in 1943 and never looked back. The tide had turned as we engaged in yet another "new era," or paradigm belief system. Technically, we can view this positive tipping point of critical mass as having occurred upon the bullish price breakouts in 1943, and again in 1950.

Critical Mass breaks up in 1950 (red arrow)

Idyllic Single Income Families of the '50's .... Morph to Bouts with Civil Unrest in the '60's

1932-1965/66

Thirty-Four years from the depths of the depression market low, the seemingly unstoppable critical mass that had propelled the Dow to such magnificent heights had finally reached its crest in 1966. There was clearly a sustained negative tipping point of critical mass that occurred sometime between 1965 and 1966. If a majority of critical mass were convinced "Father Did NOT Know Best," perhaps "Big Brother" could capitalize on such opportunity to further engender its precious monopoly in the delivery of its branded paradigms of solution.

Four Waves of Cyclical Advance From 1932

Sign of the "Times"

1971

Since cresting in '65 - '66, it was apparent that not all was going well with the American Dream as sold to its citizenry. After roughly five years of no forward progress, and for a host of other reasons, it became necessary for the United States to abandon its currency from any link to Gold whatsoever. Many have inferred that in effect, the United States claimed a quasi bankruptcy or default in doing so. Three years later, the regress associated with such necessity further accelerated the ravaging bear market toward its low, which printed in 1974. Through 1982, stagflation would reign supreme for eight more years, patiently marking time prior to the next bullish tipping point of critical mass.

Multiple Episodes of Critical Mass A Fifth Wave of Cyclical Advance

 

Since abandoning the Gold Standard in 1971, The Federal Reserve has issued nothing but "make believe" worthless units of pure fiat debt/credit, vs any reasonable facsimile of "hard asset backed money." As such, dollars as we know them are not truly valid representative measures of wealth; rather they simply represent the current medium of exchange for essential goods and services as commanded by Government fiat. The more dollar (debt) units of exchange that are available, the less valuable they become. This is a flat out Debauchery of Sovereign Currency, camouflaged under the propaganda paradigm of inflation. The 1971 event was likely a second "big bang" catalyst following the initial adoption of the Fed and fractional reserve banking in 1913. At the end of the day, we are all in effect playing one big game of monopoly at the house of the spoiled rich kid who owns the game, always gets his way, insists on making up his own rules, always has to win, and who is always in charge of the money. Considering the stark reality and implication of such simple analogy is rather disturbing. Trouble is, it's the only game in town, and we have no choice but to participate. As such, until something better arrives, we might as well participate intelligently, and with full knowledge of how the game is played.

 

"A consistently winning analyst must firmly embrace the notion that all market outcomes are possible all of the time. In doing so, we in essence become the market." -- Joseph Russo Publisher and Chief Technical Analyst, Elliottwave Technology.com

1974-1999

The tipping point toward critical mass in this time period occurred amid the closing highs of '82 and follow-through break out in '83. This tipping point marks the third bullish thrust of critical mass since 1896. After more than 100 years of Super Power Status, one might reasonably assume that the ultimate battle for Empire has been long since won. We suspect the ruling authorities presumably embrace such hubris assumptions. More frightening however, are the prospects that they are correct in this assumption. It is common knowledge in both the financial and political communities that there is an overabundance of largely intractable fiscal and geopolitical minefields weighing upon the present and future landscape of Globalization as presently structured. As such, we shall continue to presume that easily manipulated illusory benchmarks of unequal measures alongside well managed maligned reporting of official statistics is likely attributable to rapidly diminishing levels of plausible denial rather than representative of any legitimate milestones of merit toward achieving a greater good.

Extension of Cyclical Advance From 1974

Big Bang                 Bigger Bang

The Asian Currency Crisis of '97 and September 11, 2001

Some twenty odd years since the last Big Bang, the policy response in the wake of both these recent events has evoked the spawning of yet another Big Bang catalyst. This latest reflationary effort, though epic in scope, is predisposed to failure in that its necessity has arrived way too soon to bank on a "fourth" such attempt toward inciting a sustainable instance of positive critical mass. Further, a lasting bullish outcome is in direct contrast relative to the markets current position within its Secular Cycle and sequential Elliott Wave structure. Nevertheless, anything and everything remain possible under the residual paradigm dynamics spilling over from the early 20th Century. Are you ready?

Scapegoats, Patsy's, and Fall Guys:

It is rather convenient to cast the Federal Reserve System along with Bloated Imperial minded Governments and Transnational Corporations as fully responsible for such imprudent malfeasance.

However, equally responsible, and to the very delight of the "world order" mind you, is the sheer majority of ignorance residing amid the Global Citizenry. The present majority of whom inadvertently clamor for, base their politics on, and become temporarily satiated by the very policies that ultimately locks in a self perpetuating trailing stop, insuring their ongoing enslavement and dependency to the very questionable concentrations of power that they have elected to serve their best interest. Go figure.

Who is at fault then? Is it Large Covert Imperial Governments propagandizing the masses with false incentive traps? Or, is it perhaps the fault of ignorance and complacency on the part of the citizenry itself for allowing their elected stewards to foster and propagate such policies? The Short Answer: All are to blame.

Whaddaya gonna do:

Once we lock our radar onto an index, the future course of price progression has no chance in escaping the dynamic paths revealed to us through our disciplines.

Despite the vast array of formidable challenges each of us face in our individual and collective efforts to foster positive change in the world around us; we must maintain a steadfast and strident resolve toward affecting this valiant and patriotic pursuit. In the interim, we must also take steps to prevail and prosper in present and future environments so that we remain vital to voicing sound contribution of measurable consequence for the benefit of ourselves, and future generations.

"We'll Be Back" ...with more to follow

Elliott Wave Technology will continue to hone and offer its proprietary brand of technical analysis across the entire financial sphere. We consider ourselves amongst the fortunate few in having acquired a resident knowledge to impose a rather unique and highly proficient technical fix on all of the major price series.

Until next time,
"Hasta la vista, baby"

 


 

Joseph Russo

Author: Joseph Russo

Joseph Russo
Chief Editor and Technical Analyst
Elliott Wave Technology

Joseph Russo

Since the dot.com 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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