Monday January 21 2013
Fibonacci Numbers: The Fibonacci number sequence (1,2,3,5,8,13,21,34,55,89,144,…) is constructed by adding the first two numbers to arrive at the third. The ratio of any number to the next number is 61.8 percent, which is a popular Fibonacci retracement number. The inverse of 61.8 percent is 38.2 percent, also used as a Fibonacci retracement number. It is the ratio of the Fibonacci sequence that is important and valuable, not the actual numbers in the sequence.
Stockcharts Glossary
Entire boks have been written on the importance of this number series often referred to as the golden ratio. Note that it appears in nature and in art that seems to please the human eye.
Socionomics holds that endogenously generated social mood plays out in waves of human activity.The timing of these waves is in proportion to the Fib number cycle. Let's take a look.
Market Since 2000
2000 top plus 3 equals 2003 bottom
2000 top plus 8 equals 2008
Eight seems to bracket both the top and bottom of this crash
and in between 2008 + 3 = 2011 intermediate top
2000 top plus 13 equals 2013 potential top
Bull Market 1982- 2000
The labels on the chart show a similar pattern but it is up in this overall positive bull market period.
We might add that the low in 1982 + 21 years = the low in 2003
Hopefully this demonstrates to readers the importance of fractals or how the markets break into smaller pieces of bull and bear action.
Other cycles
Today is Presidential Inaugural Day, January 2013. It is exactly 40 years from Nixon's Inauguration in 1973. Then as now, Nixon asked for resignationns of near across the board of his appointees so he could re start. Now the President seeks to replace State, Treasury, Defense, and CIA, all top posts. Now as then the President celebrates a big election victory. Now as then the markets are in top timing position. Then the market topped in January 1973. Nixon's inaugural speech was January 20, 1973 so we have an almost day to day linkage. The market topped early that month at Dow 1049.
While Lehman, Bear, and nearly Merrill disappeared in 2008, the same thing occurred from 1973-74. Prudential took over Bache, Dean Witter Reynolds eventually owned by Sears, Merrill grabbed White Weld which got them into the real investment banking business,others like Goodbody, duPont Walston, and Spencer Trask were absorbed by other firms.
FDR was inaugurated March 4, 1933 when the Great Depression was well underway but actually recovering from the 1932 low, though few seemed to realize it at the time. At any rate that was 80 years ago or four full generations, enough for most of those folks to be gone that were alive and experiencing it then.
It is said that one condition for a collapse is the absence of anyone who remembered the conditions of the last one. Already few seem to remember 2003 or 2008. Richard Russell observes that given this time span, few alive today really know hard times.
And notice that
2008- 21 = 1987 Low
2003 - 21 = 1982 Low
Dow Industrials Weekly 1971 - Early 1975
Notice that then as now, the market engaged in a long sideways action from 1971 through 1972. then there was a spike from November 1972 into January 1973 , JUST AS NOW! While there is no assurance that 1971-74 will be an analog for 2011 - 2014, the parallels are here to see, I am just pointing them out.
The Inauguration was a peak in social mood, as good as it would ever get for Nixon, and the country in that period. Soon both Watergate and Congressional refusal to fund more action in VIet Nam would doom both scenarios. The market had collapsed 250 points by the end of 1973. The rest came in 1974 as Nixon resigned.
Year 2013 minus 80 takes us to 1933 when the markets were recovering from the disastrous mid 1932 low of Dow 41.
Dow Industrials Monthly 1929 - 1948
From 1929 + 3 = 1932 Low
1929 + 5 = 1934 Intermediate Recovery
1929 + 8 = 1937 High
1929 + 13 = 1945 End of WW II
As Mark Twain observed, history may not repeat but it sure does rhyme. We hope you have enjoyed this stroll through cycles as we observe the repetition of human experience.
My take is that an 18 year cyle is also in force.
Bull Markets
1911 - 1929
1948 - 1966
1982 - 2000
Bear Markets
1893 - 1911
1929 - 1948
1966 - 1982
2000 - 2018 ?
Bottom Line
While it is easy to arm chair these past results, appreciate what a market collapse of 50% does to the overall wealth of an economy. Individuals, trust funds, endowments, are all invested in stocks. But after a 50% collapse in the MAJOR averages, we are presented with what I termed in 1973. the Black Hole Theory. It is as thogh a Black Hole in the Universe occurred silently taking half the wealth in storage. The available total wealth supply shrinks drastically. And of course many smaller stocks disappear altogether. This wealth or Black Hole collapse is why repeated savage attacks on wealth during one of these 18 year perods saps the economy. It then takes years in the ensuing recovery to build wealth and confidence. This helps explain the huger run up in stocks from 1995 to 2000, It took 13 years form 1982-1995 for te public confidence to rise to the level of investing again, but at the wrong time. We appear to be at such a time again.
Great post professor! - I was about to submit a partial 'timing mark' study result I use that takes some fib relationships into account. I thought you might be interested in it. I have had good success at the hourly/4 hour and daily levels and thought I'd take a shot at the weekly. Back-testing the weekly showed some good results overall, so here goes-
I see a scenario that could conclude the current weekly structure somewhere between end of May/early June 2013 (+- a week or two). The current weekly structure I'm studying began May 29 2012 (June low). I estimate we are almost at fib 2 out of a fib 3 total time envelope spacing (2/3 in, 1/3 to go.) I do not use price levels other than for confirmations as they are secondary to the main parameters. I look at what I perceive to be buying impulse patterns on the combination charts I study (4 years and counting) . The market will decide of course and I wouldn't want anyone to take this as trading advise- I'm doing the weekly study for fun right now as I only trade the 1 & 4 hr studies.
I have no idea what degree to call it but it is a weekly time-frame, so it's anybody's guess how big even if it does occur at the time indicated. It does sound simple but the accuracy is there throughout all the market time-periods I can correctly identify. (ah- there's the trick!) The market can and does morph unexpectedly on occasion, so I'm always ready to re-compute the estimate.
Posted by: StuartD | January 21, 2013 at 02:58 PM
Additional - not to confuse anyone who uses Elliott wave theory, I should better describe the 'impulse' patterns as 'accumulation' patterns. Thanks..
Posted by: StuartD | January 21, 2013 at 03:19 PM