Thursday, January 27, 2011

Protest Like An Egyptian

With the protests/riots continuing in Egypt, I thought I'd try and break out a few socioinomic tools to evaluate the situation and try to forecast if this rash of protests has legs and a chance to actually topple Mubarak and Friends or if the wave of negative emotion can't overcome the the Egyptian Security Forces and Army.

Let's take a look at the EGX 30 since its inception as an index in 1998:

(click on the graph to enlarge)

I've labeled this from a quick eyeballing of the graph (data retrieved from here, prices in Egyptian Pounds). My guess is that we saw a five wave Primary move up into late 2007 and that Egpyt is now rolling over into Primary Wave C. Interesting that this index kicked off in 1998, as part of a large bull movement throughout the world. I have no idea where Egypt sits in terms of Cycle or Supercycle movements, but this chart looks like they are in for more downside action. (I'm sure the professionals at EWI would cringe at this quick amateur analysis, but since I currently don't subscribe to their financial products that handle Africa/Middle East analysis, I'm winging it - do your own counts, come to your own conclusions)

Amateur wave-counting aside, what might this tell us arm-chair socionomic analysts? Well, note that we didn't see these massive riots during the bottom in early 2008. Why now?

If we assume that the "personality" of the waves informs the socionomic consequences of this mass mood, it makes some sense. In corrective A waves folks are "generally convinced that this reaction is just a pullback pursuant to the next leg of advance." (pg. 81, Elliott Wave Principle) On the other hand, corrective C waves "are usually devastating in their destruction... ...The illusions held throughout waves A and B tend to evaporate and fear takes over." (pg. 83, Elliott Wave Principle).

The protests in Egypt began twenty days after the downturn in the EGX 30 from 7210 on 5 January to 6723 by 24 Janauary (an 6.75% drop in less than a month) leading up to the Day of Rage on the 25th. The markets have plunged, following the mood of investors and a temporary trading suspension.

What might this mean? Well, in my opinion, it makes sense that the protests would not kick off until a significant Wave C. During Wave A, mood retains an optimistic bent to it, even if the trend is negative. Wave B seems to confirm that optimism, until Wave C kicks off, shattering those hopes and, in this case, moving a segment of the population into action.

What does this mean in terms of success? Well, I am personally skeptical of the ability to overthrow the security apparatus of Egypt. Mubarak is a survivor in that sense. That said, if the Cycle and Supercycle degress of mood are also moving negative in Egypt, then this is the time when you could see either a successful overthrow that is relatively peaceful, or a martyred movement that could lead to protracted bloodshed and, one wonders, possibly an insurgency.  Maybe Mubarak's kid knew what he was doing when he packed up and hauled his butt out of Egypt recently.

Time will tell, but the short term picture looks negative for Egypt's current establishment, in my opinion.

One final note.  Check out the marketing symbol for the Egyptian Exchange:

A nice representation of a bullish impulse wave, straight out of Elliott Wave Theory.  You'll notice they forgot to add the A-B-C correction phase...

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