|
QUICK
LOOK REPORT #39: Background: This update considers a Fibonacci sequence approach in the weekly closing prices of the S&P 500 Index from 1950 through Jan 2007 (Reference S&P Weekly predictions Qwik Look Report # 14 for Nov 2005 - Rinehart). The Fibonacci sequence is: 1,2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181, etc (to get the next point in the Fibonacci sequence add the previous two cycles together to get a longer cycle). If one considers these days, the conversion to a Fibonacci Weekly Sequence would divide by 5 (5 days = 1 trading week) or alternatively one could consider the Fibonacci sequence as a time sequence for any period selected. The approach for the S&P 500 Weekly Index we are looking at is to consider the Fibonacci sequence as a pure sequence and use results from Fast Fourier Transform to locate the nearest major period to a number in the Fibonacci Sequence. For example, we found the seven (actually 7.2) year cycle and the ten year cycle are two of the largest cycles in the S&P 500 Index. The seven year cycle would correspond to a period of 7.2 x 52 = 374 trading weeks which is a point close to the Fibonacci sequence of 377 weeks. The 233-week cycle is close to the four year cycle (4.2 x 52 = 218 weeks). In fact, we can optimize the code to look for the largest “nearest neighbor” cycle (say within 5% of the Fibonacci sequence). Qwik Look Report #14 was predicting a 100 point cycle drop from June thru Nov 2006 (largely due to the effect of 334-week cycle) but was not based on Fibonacci cycle sequence but rather the largest cycles we could find in Oct 2005. However, it turns out that the 334-week cycle has probably morphed into a longer period cycle of 374 weeks (close to Fibonacci sequence of 377) due to a liquidity injection from M3 which has pumped the amplitude and changed the period about 10% over the last six months. The effect has been to produce a rally in the period from late August 2006 thru early Feb 2007 and the S&P 500 Index has not yet broken its main trend line and remains in an up channel. We will be looking at adding our M3 results, US GDP to the S&P 500 Weekly Index to see what the Neural Net is telling us about the future. Chart 1 show the (detrended) S&P 500 Weekly Index versus the four largest weekly (Fibonacci) cycles from 1950 thru 2006. One has the “Mega Peak” from 2000 and we may be seeing an echo of that peak in the current rally. However, the rather sharp rebound in the S&P 500 Index is not all that impressive in terms of an actual deflated USD over the past six years but the rally in some foreign markets has been very strong. The main cycles are the four year, seven year, ten year and eighteen and a half year cycle. Chart 2 shows the two of the largest cycles in the S&P 500 weekly Index (seven and ten year cycles). The amplitudes of these cycles are growing and the most interesting aspect of these cycles is that they appear to be merging together which should be evident in early 2009 (on the downside). This phenomenon happens about every 19 years. These cycles will bottom in roughly in 2011/2012 and again in 2020/2021 (joining the 37 year cycle). Chart 3 shows the 34-week (probably the strongest component for the 200-DMA) cycle in the S&P 500 Weekly Index and the markets are currently trending upwards with this cycle. It looks like this cycle is completing its top in May 2007/June 2007. This cycle is somewhat unsteady and occurs in a range from 33-weeks to 38-weeks. Chart 4 presents the current predicted waveform for the S&P 500 Weekly Index for 2007 assuming the 374-week cycle is in play. The S&P 500 Weekly Index may hit a bump in the road around mid-April (markets do not like April 15 deadlines), it still looks like it is trying for a top over 1500+ by mid July (if not sooner). This may not come true if the Iran situation goes “live fire” before July 2007. Chart 5 presents a plausible 35+ year cycle in the S&P 500 Weekly predicted thru 2026. This dataset is not long enough to resolve the issue but the same cycle does exist in the Dow Jones Weekly dataset from early 1900s. This cycle formed a possible top in 2003 and will be heading down with a bottom in 2021. Remarks:
3. If there is a 35+ year cycle, it will be adding to the coming downside of the 7, 10 and 18 year cycles in the period from 2019 thru 2021. This would be my choice for a time period in which a “new worldwide fiat currency” would appear (largely replacing the USD) together with growing regional energy/trading partners. It would also be a time of resource wars between countries for energy and food if they do not have large-scale coal or nuclear power plants and large, fertile acreage for crops (how is China going to feed all its population growth?). The period from 2018-2021 is probably the basis for the appearance of the real “Secular Bear”. In other words we have a “Mayan Bear” in 2009-2012 (but perhaps nothing compared to what’s yet coming) which is a Kondriatov Bear in 2018-2021 or beyond. So much for Da’ Bears. 4. There is speculation and a feeling that a correction may be coming soon in China’s markets as well as India. The 18-week cycle has a top coming in July 2007 that may provide a clue to a coming correction (which may be in the range of 8% to12+% if it happens). 5. One should consider adding some Silver and Gold Eagles to the portfolio on a regular basis and take possession of the assets. The fun has not yet started (but now coming off the bottom of the large 86-month cycle). The Federal Reserve Banks may not yet sweat gold and silver rising in price but by the end of 2010 the bankers are going to absolutely “glisten”. 6. The low in the S&P 500 Weekly Index (USD weighted) for the next decade is currently centering on 11.21.11. It has a nice symmetry to it. It is also a predicted date for Citigroup’s waveform to experience a major (or complete) downside move.
CONTACT
INFORMATION 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. |
