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THE
MAGNIFICENT SEVEN Background:
You say there in 1871 there was a group who proposed to develop an Index of representative stocks, railroads and stagecoaches. We have something similar today – it is called the S&P Gang. It is rumored The Magnificent Seven rode with this Gang along time ago – like “Ghost Riders In The Sky”. Take a look at the drawings on this old cowhide I found in the shed out back. What do you make of it? Do you think the “storm clouds are gathering,” Mr Jim? The Old Wild West: Charts 1 - 4 show the Magnificent Seven as they might have looked when they rode thru the S&P 500 Weekly Index (^SPZ) from the 1950s to the present day. The filter sum of the seven largest cycles in the S&P 500 Weekly Index from the 1950s is compared to the actual weekly closings. The amplitudes change as the boys have aged and gained weight from all the M1 and M3. The nine largest weekly cycles in S&P 500 are predicted to all peak in the Nov/Dec 2004 timeframe if the current “Ghost Riders In The Sky” exist at all !?! Charts 5-6 suggest the continuing issuing of debt (printing 24/7) at high rates by the Fed Reserve Banks since 1995 is having a tremendous effect on the magnitude of the longwave weekly cycles in the S&P 500 (as well as all major world indices) such as the 176-week and 233-week cycles. The cycle amplitudes have grown way beyond anything ever seen in the markets in the past 100+ years. The amplitude of each of the four largest weekly cycles is already larger than the magnitude of the entire 1987 crash and in some cases much larger. Is this old cowhide drawing for real? Charts 7-12 present a comparison of the 200-DMA versus the S&P 500 weekly closings (detrended). In the years from 1990-1998 it tracked the turns in the S&P 500 very well but in 1999 and 2000 the shorter cycles became dominant and it made interpreting the 200-DMA more difficult. The 40-week (200 DMA) cycle may be currently forming a broad bottom in the S&P 500 Weekly Index. The Index may not necessarily make “new highs” as predicted in Nov 2004 as it is starting to break-down. Somebody is trying to keep it pumped-up for the election year but it remains to be seen if this strategy will really work. A real gunfight may have already have started outside of Dodge – not a good place to be right now. The Shootout at the OK Corral: Charts 13 shows the Magnificent Seven as they might look riding into Dodge in 2005. Rumor has it they like to show up at the OK Corral in October. Of course, nobody really knows if they exist or they are just “Ghost Riders In The Sky”. If they are coming so are Calvera and his gang of banditos. The dynamics of market crashes are far more complex than depicted in Chart 13. A similar situation occurred in 1987 where all the cycles in the S&P 500 Weekly Index “peaked” in June 1987 but it did not result in any “crash” until Oct 1987 (some 22 weeks latter). In fact, the market continued in a strong rally mode into the “1987 crash” as a result of money pumping by the Central Bank of Japan into the US markets and it is happening again. A subsequent analysis showed the “1987 crash” centered on the maximum downward acceleration point of the combined cycles. The analogous situation for the current S&P 500 is the maximum downward acceleration would be reached in Oct 2005 (but this will probably change over time). Market crashes occur over a “short period of time” with a major downside moves in a matter of hours with subsequent major moves over the following eleven days in the initial drop! In any event, it appears the S&P 500 Index and other major indices are already breaking down. These equity markets are becoming very dangerous markets (worldwide). The lack of volatility noted in the S&P 500 Index may well be due to the topping of all these major cycles as noted in this study (i.e., the crest maybe forming of a coming tsunami and the markets are approaching the huge (chaotic) top as in a long swell (just don’t look down)). The formation of the downside move in continuous waves strongly suggests this is a long term secular bear waveform down and propagating well into 2007 after it starts! It actually appears to be the “right shoulder” of a ten-year “Head and Shoulders” formation from 1995-2005. This situation will require monitoring as the ominous “weather front” continues to develop and approach worldwide. This situation represents a “Code Red” in this type of analysis from past experience. Whether you understand the information being presented or not or totally disagree with it, this is not a drill – give serious consideration to protecting your major mutual fund and 401(k) investments now and consider slowly purchasing gold coins or bullion on dips as part of your portfolio. It is possible that massive manipulation of M1, M3 can provide a softer landing but the cycle dynamics appear to be unstable and manipulated going into Nov 2004. This type of analysis generally needs to be updated every 15-25 weeks to track the approaching financial storm. You can stay if you want to partner, but as for me where is that stagecoach to Purgatory? “Ghost Riders in the Sky” (Words and Music by Stan Jones (1949)) : As
the riders loped on by him he heard one call his name Ghost Riders in the Sky”.
DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, the author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments. CONTACT
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