SPX or S&P, fractals anyone?

spx april b 2016

spx april 2016 s

Here is a definition of a fractal;

A fractal is a natural phenomenon or a mathematical set that exhibits a repeating pattern that displays at every scale. It is also known as expanding symmetry or evolving symmetry. If the replication is exactly the same at every scale, it is called a self-similar pattern.

The example I like best is that of the coastline. It does not matter whether you take a 20km. piece of coastline or 20 meters or even 2 centimeters, the pattern is essentially the same for all three. In the above charts we have the Bigchart showing roughly 20 years worth of action in the SPX. It has been a very controversial issue whether or not the top was in with the tech bubble in 2000. The Gainsville boys have generally subscribed to this view and therefore could not embrace the idea that the great recession breakdown was simple a wave c in a 4th wave, to be followed, of course, by a 5th wave. There is a lot of deference for these guys so most EWavers went along with that count. Furthermore broader market indexes generally do support that view. But they have been wrong before!

Value, as we have pointed out ad nauseam ,  is simple an income stream divided by 1 plus the interest rate. With interest rates at zero or close to that value simple becomes the sum of all future positive cash-flow, which is infinite. Therefore a market index cannot be overvalued with interest rates this low. Of course interest rates at zero is an economic distortion of huge proportions but, given that they exist and even if you do not accept them as real, it is still possible that the index goes a lot higher. Should the smaller fractal follow the bigger one, assuming the bigger one does not rise much further, we could see the SPX approach 2500, or roughly another 25%, no problem at all. Not sure I believe it!

The past 3 /4 months have been exceptional. First the year started with the worst 10 days ever – ever goes back to 1894. Then the recent rise, starting around Febr. 11th,  has displayed the best performance for the past 90 years and is still ongoing. Back to back madness like this should warrant caution, but this stupid thing may still go up further as long as the Central Bank narrative keeps the market in it’s spell.

SPX, S&P 500 update

SPX mar 8 2016

I am not particularly happy with the above count. It seems a little contrived or artificial to me, but then we live in artificial times. This index moves roughly 200 points 4 times in about a year, depending where you put the top. That is a lot of movement without any headway, mostly created by Greenspan, Bernanke and the “data-dependent” lady and with a little help from Draghi, China, Japan and just about every other country and also more recently from the likes of C Lagarde of the IMF. Remember that it takes a Pavlov to make a Pavlov dog, and now the New Normal has essentially become the New Abnormal and is universally accepted as gospel throughout the corridors of haute finance. Except it cannot work. It is a bit like the perpetual motion machine which cannot exist under the rules of nature or physics, that is an open and shut case thanks to brilliant minds. Economics has not been endowed with an equal dose of brainpower and is still wrestling with ceteris paribus. Soon that may no longer be a reason to propound blatant nonsense. Wave 3 could take care of that.

By the way, so far at least we haven’t traded above 13646 on the TSX either. That was three weeks ago, a virtual lifetime in today’s terms.

DJIA, SPX, NASDAQ A picture is worth 1000 words

DJIA oct 6 2012S&P oct 6 2012

Nasdaq oct 6 2012.

The 3 musketeers of the US financial system. All three sport reasonable well defined “diagonal triangles” which is Elliotte-speak for wedges, pennants, rising flags, whatever you prefer. They occur only in 5th , or C waves. This cannot be a 5th as it would have had to start at the March 2009 lows of the great recession. This is the C of an A-B-C large B-wave. or a wave 2 which has the same implications. A throw-over is normal and at times the index “hugs” the top line for a while and sometimes it falls a little short, here we have all three. Invariable the stock (index) falls back to the level of the base, in this case the bottom of the chart. It does not necessarily stop there!

The RSI and MACD are suggesting something similar or at least a turnaround. The unemployment rate is not as hot as they would like you to believe. It is perhaps not the conspiracy that Jack Welch is suggesting but it is definitely a matter of changing the way things are counted. Read about it at www.Shadowstats.com ;

unemployment oct 6 2012

DOW, DAX, SPX, NYA , STOX600, TSX, DJT

indu feb8 2012

The DOW has clearly exceeded its May 2 high of 12876 by about 50+ points. This would normally negate the count, that is the one where this was wave 1 down followed by an a-b-c correction/rebound. I simple do not know what to do with this! The structure is just fine, only it should not have gone this high. EW is supposed to work when markets work, that is when there are a multitude of participants who freely make up their minds to buy or sell. Perhaps this precondition is no longer met now that CB’s have thrown in 15 trillion into the punch-bowl (1/3 of the value of world equities!), never mind all the other “stimulating” factors. I just do not understand but at the same time will not get religious or dogmatic about it. Other than the Nasdaq, which is in a completely different phase, just about every other major index has NOT negated this count, so for the time being we will stick with it. Below are some examples;

DAX feb 9 2012SPX feb 9 2012NYA feb 9 2012

stox600 feb 9 2012TSX feb 9 2012DJT

You can click on them to enlarge. Un till such time that a few more of these “negate” the count I will take the catholic approach and simple nullify this one  single incident.