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LOOK REPORT #43 Background: This update considers the primary Fibonacci Cycles in the daily closing prices of the NYSE Composite Index from 1966 through March 2007 (Reference NYSE predictions Qwik Look Report # 35 for Jan 2007 - Rinehart). The Fibonacci Cycles are: 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610, 987, 1597, 2584, 4181 and trendline is based on 6000 trading days for the given daily dataset (to get the next Fibonacci Cycle add the previous two cycles together to get a longer cycle). The rate of increase in the slope of the NYSE from Sept 06, 2006 thru Jan 02, 2007 was about 11.2 NYSE points per day but we have reduced this slope by 50% given the NYSE Composite Index is starting to break below its seven month channel and the slope may change in the next few months. Chart 1 show the predicted 18-week cycle of the NYSE Index predicted for 2007. A prediction was made on Dec 30, 2006 and published as Chart # 4 in Qwik Look Report # 35 regarding this cycle. It was noted in a number of past write-ups (i.e., Magnificent Seven Series) how this cycle has been used for decades to shape a “crash wave front” in the Major Market Indices. This is the cycle which led to the “sharp sell-off” in the NYSE Composite in March – orchestrated by the Chinese Central Bank (who showed them this game?). One should note future tops on/around May 21 and Sept 28 of 2007 as well as a bottom in this cycle on/around July 29 (resolution of current issues in Iranian Conflict?). Chart 2 shows the predicted Seven Major (daily) cycles in the NYSE Composite Index from 2000 and predicted thru 2007. We are currently still in a downtrend mode. To override the current cycle amplitudes, M3 levels will have to continue to exceed 10%+ per annum. What is interesting about the overall waveform is the “relative flat spot” followed by an uptrend into early 2006 which occurred starting from about Sept 05, 2005. The Central Banks takes advantage of these “flat spots” (when the cycles tend to cancel each other) to accelerate M3 significantly into the next major top (which was March 2006 with Housing Crisis and the sudden recognition of fraud, waste and abuse). Chart 3 shows the Seven Major (Daily) Cycles for NYSE Composite Index predicted from 2008 thru 2010. They are gradually forming the huge top in the world markets as well as the US GDP and USD. Two major cycles are the ten-year cycle (2584 days) and the six-year cycle (1597 days) which are both larger than the four-year cycle in the NYSE Composite Index. A top is predicted in Aug 2008 in the markets followed by a major market downtrend into July 2010. The period from Oct 2009 through late 2010 should be closely watched and major defensive action considered against a possible sudden and major decline in the USD as well as a negative US GDP. The waveforms of all these time series are continuing to flash a coming financial crisis for the US in this timeframe. What are the financial algorithms that show one how to price risk against seven, ten, eighteen, twenty-eight, etc year business cycles with increasing amplitudes? The various trend following schemes that maybe inherent in derivatives pricing will probably overshoot at the top and bottoms of long period waves (which have increasing amplitudes) and you may only overshoot once in this game and not get a second chance. The current exponential build-up in derivatives may be suggesting an inherent instability in the pricing algorithms (negative damping in the coupled financial (currency) system and credit /bond markets leading to exponential growth in liquidity/debt (on paper). The inverted yield curve may be a consequence of improper phasing in bond market. If derivatives and swaps risk assessment are continuing to “overshoot” by a very small amount on every trade they maybe continuing to build to ultimately reach dangerous levels. It is possible to have only one (real) player left on the planet who is party and counter-party to 99%+ of all transactions (quad-trillions) and thus owns the game at some point. It does not matter on which side the default ultimately occurs – the player owns all the chips in the game at time of default. Chart 4 shows a prediction for the NYSE Composite Daily Index for April and May 2007. The overall bias of the curve could shift by 100 to 300 points (depending upon the current rate of M3) but it appears to be a consolidating waveform with limited upside potential thru May 2007. Add Iran into the mix and we have the potential for continuing sharp volatility off the 18-week cycle through July or September 2007. Remarks:
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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. |
