Additional References
November 2006, EWFF
Sobering military developments in Vietnam and continued tension in North Korea last week failed to affect the stock market in the slightest degree.
—The Trader column, Barron’s February 26, 1968
The higher stocks extend, the more intense the social divergence becomes. The quote above shows just how precisely the Dow Jones Industrial Average’s bullet-proof veneer to an escalating guerrilla war in Iraq and tension with North Korea resembles the social disorder that ruled as the index carried to another B-wave peak in 1968. As The Elliott Wave Theorist’s November Special Report notes, the war in Iraq fits with a high degree B-wave like that of 1968, when a countertrend rally within a major bear market accompanied the war in Vietnam. President Bush recently verified the tightness of the correlation when he compared a worsening tone in Iraq to the 1968 Tet Offensive, which is “often seen as a turning point in the Vietnam War.” Like 1968, The Washington Post says October 2006 has the look of a “tipping point” when civilian and U.S. casualties shook “both the military command in Iraq and the political establishment in Washington.”
Recent tension with North Korea also follows the pattern of a geopolitical standoff in 1968. In that year, the Dow stormed higher even as North Korea “shocked the world” by seizing the USS Pueblo, a U.S. spy ship, off its shores. The impasse ended in December 1968, the month that the Dow Industrial Average hit its B-wave peak. With its first-ever nuclear test, North Korea shocked the world again on October 9. After a period of heightened tension—one North Korean general even stated that war was inevitable—the most recent highs brought some thawing. On October 31, North Korea agreed to rejoin nuclear disarmament talks. As troop deployments along both sides of Korea “demilitarized zone” attest, tension is basically a fixture of North Korea’s foreign relations, but it does tend to wane right at important peaks. Notice that the peaks of 1994, 1998 and especially the larger peak of 2000 were accompanied by agreements or “near breakthroughs.”
The bear market corollary is that the conflict is greatest near major lows. Following the Korean War in the early 1950s, which came near the end of a Supercycle bear market pattern in the inflation-adjusted Dow, one of the most contentious periods was 2002. After Bush identified North Korea as a member of the “Axis of Evil,” North Korea marked the lows of October 2002 and March 2003 by admitting to processing highly enriched uranium for use in atomic bombs, expelled nuclear inspectors, pulled out of the nuclear non-proliferation agreement and fired missiles within 200 miles of Japan. As long as the Dow continues to rally, the conciliations of recent days will persist, but the resumption of the bear market will ultimately bring a return to more serious conflict. The larger degree of the current peak is confirmed by the nuclear stakes. North Korea may not push the button, but its acquisition of nuclear weapons has certainly gotten the attention of its non-nuclear neighbors and aspiring despots everywhere. The October bomb test is the first since 1998, the front end of the great peaking process. It may go down as the spark that ignited a new nuclear arms race.
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