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David Knox Barker is the founder of Market Cycle Dynamics, LLC, and the publisher and editor of The International Market Cycle Dynamics Letter. Barker is one of the world's foremost experts on market cycles and the global economic long wave. He is the author of The K Wave; Profiting from the... More
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Market Cycle Dynamics, LLC
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MCD Weekly Briefing Blog
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The K Wave; Profiting from the Cyclical Booms and Busts in the Global Economy - eBook
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  • Tracking Individual Stock Cycles in Price and Time

    Individual stock cycles in price and time are the building blocks of major market index cycles. Historically it has been more effective to study stock market cycles using major market indexes as opposed to individual stocks. More recently, since the Federal Reserve has taken up their third mandate mantra of manipulating global markets into a “virtuous” inflationary circle for financial assets, questionable activity in the futures and options markets have distorted the major developed country indexes.

    Professional and individual investors and traders are attributing recent index behavior to the Fed’s new third mandate, and the unfathomably deep pools of capital that are at their discretion to trigger inflation in financial assets. Commodity and oil shares have joined the global “virtuous” inflationary drum circle. Meanwhile, individual stocks, such as Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Nestle (OTCPK:NSRGY), Coca Cola Co. (NYSE:KO), China Telecom (NYSE:CHA), and many other individual shares are tracking the Wall cycle targets in price and time with far greater predictability than the major indexes.

    The object of the monetary beat of the virtuous drum circle is to stoke the inflationary fires at the center of the global economic engine, thus preventing the feared long wave winter deflationary apocalypse. Growing addicted to the monetary injections, investors in the commodity and oil shares have grown hypnotized by the beat of the QE2 drum, dancing faster and faster around the virtuous circle as global commodity inflation heats up.

    Food inflation fed revolutions are enveloping the emerging world, so maybe the “virtuous” circle of inflation is a success, depending how you measure success. “Politics destroys the money world”, as the late PQ Wall was fond of saying. Now the money world is returning the favor and setting fire to unstable political regimes around the globe. Who is next? Saudi Arabia, Iran, China? Unfortunately, the law of unintended consequences is alive and well, and Murphy is fluent in all languages.    

    Of course, we will likely never know for sure the full story behind the dark pools bidding the major index futures ever higher, but there does appear to be some questionable activity at important market index junctures. The dark pools appear to be bottomless, or at least a few $trillion plus, if the world really gets in a bind. The indexes regularly rally to and through key Fibonacci and Gann targets, blowing out the shorts, continuing the march of the global investor pilgrimage into the virtuous inflationary drum circle, in a trance and in pursuit of investor’s Nirvana.

    Sources have suggested that the Fed has their own Gann and Fibonacci traders, and they enjoy taking out the key resistance targets, spending billions to make sure key support holds. Chairman Bernanke has suggested he will do what is required to insure the mesmerizing dance to the beat of the inflationary drum circle continues. Therefore, turning attention to the cycles of the individual stocks is reasonable, since that appears to be less subject to the beat of the QE2 drum and the virtuous circle dance around the fires of global commodity inflation.

    The non-commodity stocks are still subject to that old corrective market force akin to gravity, which sees to it that stocks put in regular cycle lows. Microsoft is a case in point. Look at the charts below, and their accompanying LWD drill-down Fibonacci grids. If you have not been paying attention to the Fibonacci drill-down grids and the Wall cycle forecaster, you have been investing blindfolded.

    Observe the Microsoft Level 1 Fibonacci grid, which uses the 2000 high and the 2009 low to generate the Fibonacci grid. The Level 2 grids on either side of the inverse golden target of $27.40 are also included. Observe that the high in 2008 tagged the golden ratio in the Level 1 grid, even though the low in the grid had yet to be printed. The July 1, 2010 low tagged the 23.6% target in the Level 1 grid. Other grid targets also produced important turns, such as the inverse golden in the Level 2 grid in January and April 2010. The Level 1 grid is clearly a hot grid for Microsoft and warrants watching.     

    MSFT 

    At LongWaveDynamics.com price is always a big part of the cycle story. However, time helps complete the picture in the study of cycles. The low of July 1 in MSFT, along with the S&P 500, was an important Wall cycle low. What the Wall cycle date forecaster is telling us is the MSFT is once again looking for a Wall cycle bottom, and it is trying to bottom without breaking hard below the 38.2% inverse golden ratio in the Level 1 grid target of $27.40.

    It closed below this target on Friday, February 11, and needs to get back over it next week, or it will have to drop down and test the 23.6% target to bottom the Wall cycle in MSFT. If the indexes finally roll over to end their Wall cycle, MSFT will be hard pressed to not be forced into the Level 2 grid between $22.41 and $27.40. The golden ratio is always the most interesting target in any grid, so keep an eye on $25.49, which is the 61.8% target in the Level 2 Fibonacci grid of $22.41 to $27.40. Microsoft is in Wall cycle #4 of the current Kitchin (business) cycle, which began in March 2009. The chart above suggests this Wall cycle is attempting to put in a bottom. The LWD Wall cycle bottom forecaster generates specific target dates for a bottom for the Wall cycle in Microsoft.

    A quick LWD method analysis for Coca Cola Co. (KO) is presented below. The top chart demonstrates how the Level 1 high comes from the 1998 high and the Level 1 low comes from the 2003 low. The chart demonstrate that both the December 2010 high and the January 2011 low were close to the Level 2 golden ratio target on either side of the 76.4% Level 1 Fibonacci target. The January low was within one day of the 50% Wall cycle extension target. This makes the January low a possible important Wall cycle low.  KO appears to have bottomed in the Wall cycle ahead of the S&P 500 index. 

    KO 

    Intel is an excellent example of the powerful price and time Fibonacci cycle forces at work on an individual stock. The Level 1 uses the 2000 high at $64.12 and the 2002 low at $10.99. If you are invested in or trading Intel you will find it relevant that the April 2010 rally was stopped dead in its tracks, 10 cents shy of the Level 1 23.6% target of $23.53. At the September 2010 low, Intel was testing the Level 2 golden ratio at $17.60. That January 7, 2011 low tested and briefly dropped under the inverse golden 38.2% target in the Level 2 grid, and it has now rallied up to the golden ratio 61.8% target at $21.70.

    Intel looks like it may have bottomed its Wall cycle on January 7, 2011, which was the exact target date on the Wall cycle forecaster from the August 31, 2010 low for 9.016% short of the ideal target date. If you are investing in or trading Intel (INTC) without the LWD method of tracking individual stocks and indexes in price and time, you are doing so in the dark.    

     

    Intel 

    Presented above are just a few individual large cap U.S. stocks. Every index and individual stock around the globe can be tracked with the LWD methods in price and time. Siemens (SI) is currently trying to hold on to the 85.4% target in its Level 1 grid. Nestle is currently testing support at the same 85.4% target in its Level 1 grid. These shares have had quite a run and could face major resistance as European austerity appears to be the path out of the European debt crisis that will reach the next stage in 2011. Tracking their cycles is advised.   

    Nestle

    China Telecom Corp. (CHA) looks like it put in a Wall cycle low on December 19, 2010, note that was an exact 50% Wall cycle extension from the low on May 21, 2010. CHA is now approaching the golden ratio in the Level 1 Fibonacci grid at $62.84. It must get over this important Fibonacci target to keep the current Wall cycle rally going. The golden ratios in the Level 1 and Level 2 grids often prove to produce Wall cycle or Quarter Wall cycle corrections that shake up investor confidence and test important Fibonacci support before launching the next cycle.    

     

     

    The Fibonacci drill-down grids and ideal cycles in price and time reflect the fields of human action in the global economy that produce cycles in the large cap stocks. It is a global phenomena. You will see these cycles in price and time in almost all stocks. These are the building blocks of the major global index cycles. Cycles in price and time are natural laws that can briefly be manipulated with monetary and fiscal policy in pursuit of virtuous circles. However, regardless of such measures and how well intended they may be, the ebb and flow of the global economy and financial markets will take their natural course in price and in due time.

    Investors and traders ignore the cycles in price and time in individual stocks and indexes at their peril. Cycles in individual stocks produce a refreshing amazement at the human action that produces them, in an increasingly financially jaded world. Cycles are a delight to study and observe as they cut their own virtuous circles to the drumbeats of global human action, and not the Keynesian manipulators.

    We are only just beginning to understand the virtuous circles of human freedom in action that produce the global cycles in price and time in individual stocks and major indexes. Manipulated indexes in pursuit of virtuous circles of global inflation are just a passing craze that will end as the great global long wave winter cycle of human action turns full circle. In the meantime, tracking the cycles in the individual shares can be rewarding for investors and traders that enjoy the value of cycle analysis.

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: MSFT, KO, INTCEGY, CHA
    Feb 13 10:12 PM | Link | Comment!
  • Schumpeter vs. Wall and the Business Cycle Count in the Long Wave
    Joseph Schumpeter was a Harvard economist and president of the Econometric Society (1940-41). He was author of the two-volume tome Business Cycles (McGraw-Hill 1939). Schumpeter’s cycle research is of particular interest because he was one of the first to attempt to integrate sociological understanding into economic trends. He also presented an integrated approach to cycles that presented the Kondratieff long wave as a larger scale of the smaller cycles. In Business Cycles, he introduced a theoretical model for how all the various cycles fit together.

    Schumpeter’s model of how all the cycles worked together to produce long waves included Kitchin cycles (the regular business cycle of 3-5 years) and Juglar cycles (7-11 years), with three Kitchins in each Juglar. Schumpeter also wrote of the Kuznets cycles (15-25 years), but didn’t put them in the charts below. The chart depicts the flow of the Kitchin and Juglar cycles integrated in 56-year long wave cycles. Note that Schumpeter’s model presented 18 business cycles in a regular long wave. 

    Schumpeter 

    Schumpeter was limited by linear mathematics. His ideas needed non-linear dynamical systems to formalize his approach. This is precisely what is proposed at LongWaveDynamics.com, which takes a dynamic systems approach to business cycle analysis, long wave seasons and the Kondratieff long wave cycle, and the smaller cycles used by active traders.

    The late market analyst PQ Wall presented a long wave model different from Schumpeter, which was essentially a dynamical systems approach to market cycles. Wall did not describe his approach to stock market and social cycles in terms of dynamic systems, but Wall took what he described as a threeness and fourness approach to cycle divisibility, which was a genuinely novel approach to cycle analysis.

    Wall proposed that long waves consist of four seasons of development, much like the natural seasons of the year; spring, summer, fall and winter. This seasonal approach to the long wave cycle is expected to have originated with Oswald Spengler, the German sociologist. Wall divided each season by four, producing sixteen business cycles in every long wave. The chart below presents Wall’s approach to business cycles in a long wave. The important take away is that PQ Wall’s approach produces 16 and not 18 business cycles in every long wave. 

    Idealized Long Wave 

    After two decades of stock market cycle research from a dynamic systems approach, I have come to endorse Wall’s approach to the business cycles that produces what I have termed long wave dynamics. Below is a chart that presents an inflation adjusted 20-year moving average of returns in the S&P 500. This chart knocks out some of the noise produced by fiscal and monetary intervention, which is for the express purpose of eliminating business cycle; a goal that always manages to elude the interventionist, no matter how well intended their gallant stimulus efforts. PQ Wall was fond of saying, “Politics destroys the money world.” The riots sweeping the world and subsequent tumbling markets demonstrate this observation. 

    The analytical power of the four-season approach to long wave analysis is clear on this chart. It is also clear on this chart that global stock markets are in the midst of a winter season rally that will surely wane. The spring and fall are seasons of corporate efficiency, which drive corporate profits and stock market gains. The summer and winter are seasons of corporate inefficiency, where overproduction and excess debt are a drag on the profits of the global economy. More debt is not the solution. It is winter, but spring is coming. 

    Long Wave S&P Inflation Adjusted 20 Year 

    To understand the dynamics of business cycles, and how they fit in long waves, a closer look is required at the length of a regular business cycle. Most analysts have observed that the business cycle typically does not manifest in exact lengths, fluctuating within a range. Kitchin himself believed they averaged 40 months. In the footnote on page 174 of the two-volume 1939 edition of Business Cycles, Schumpeter conveys that the most valued assistant that Kitchin ever had:

    “threw up his hands in holy horror when he expressed himself satisfied, in a certain case, with a periodicity of 48 months as showing the presence of the 40-month cycle.”

    Many market cycle analysts have experienced this same frustration in grappling with cycles and their lack of consistent length, particularly the regular business cycle. Schumpeter provides additional review of research on the expected length of regular business cycles:

    “The 40-month cycle, although first none too favorably received, has since acquired citizenship which, as we shall see, cannot reasonably be questioned. Professor Mitchell’s authority may, it seems, be appealed to for qualified support (op. cit. pp. 339 and 385), based upon analysis of five American systematic series (among them, two of clearings and one of deposits) for 1878-1923, which gives a mean duration (of cycles in general) of 42.05 months with a standard deviation of 12.37 months, while the median is 40 months.”

    It is important to note that Kitchin, Mitchell and Spengler were analyzing business cycle data from the late 1800s and early 1900s, most of the business cycles they studied occurred prior to the creation of the Federal Reserve System. This was also a time before government interventionism and central banks began a systematic attempt to stamp out business cycles, blaming their existence on animal spirits. The conviction remains that such animal spirits can be appeased, with appropriate Keynesian black magic. Research by Jay Forrester in the System Dynamics program at MIT indicates that such intervention makes business cycles and long waves run longer, only delaying the day of reckoning.

    A dynamic approach to business cycles suggests the radical notion that there is such a thing as natural length that produces an ebb and flow to business cycles, and that cycles fluctuate around that natural length. Cleary business cycles are running longer than their natural lengths since central banks and governments began to come to the rescue. This fact is important for any dynamic analysis of business cycles. Since this long wave began in 1949 the Kitchin cycle has averaged almost exactly 48 months.

    The 48 month of the election cycle clearly has produced a gravitational pull since the politicians have used their post-depression intervention to try and stamp it out, especially in election years. Based on 2008, the politicians appear to have lost control of the business cycle, and now Russian economist Kondratieff is in the driver’s seat of international free market capitalism. The mother of all business cycles, driven by the U.S. housing bubble, crashed and burned into the March 2009 low. Forget the animal spirits; Nikolai Kondratieff is now at the wheel of a global overproduction and debt crisis that threatens a global trade war. Once we return to truly limited government, and it is coming, the business cycles will return to a natural shorter rhythm.     

    In the 1990s, I began researching business cycles and their corresponding stock market cycles in pursuit of the “natural” or ideal length of cycles. This was accomplished by searching for hits on Fibonacci ratios around a specific length. Using the logic presented above regarding the 42.05-month mean length of the cycle and other literature an exact 42-month cycle was tested. I was looking for Fibonacci ratio deviation hits from that ideal length in the real stock market data.

    A 42-month Kitchin cycle produced many hits, often in the same week of the Fibonacci ratio date targets relative to the ideal target, or hits on or close to the Level 2 targets. The Level 2 targets are the Fibonacci targets between two Fibonacci targets. Below is the Kitchin cycle forecaster that shows a direct hit on the fifth degree 14.589% Fibonacci ratio target in the Kitchin cycle that lasted from the low on 10/8/1998 to the low on 10/10/2002. It produced an exact date hit. If you recall those two days, they were important stock market cycle lows that ended the old and began the new Kitchin cycle. The stock market cycles do not match the economic business cycles exactly.  

     Kitchin Cycle Forecaster 

    The Kitchin cycle is a cycle that investors need to pay close attention to at all times. The Kitchin cycle rolls over 16 times every long wave, and wreaks havoc with investors and traders. What is most interesting for traders is that every Kitchin cycle divides into nine Wall cycles. Investors and traders will recognize this cycle as the 20-week cycle. 

    Using the 42-month “ideal” cycle makes the “ideal” or “natural” Wall cycle 141.9-days. Like the Kitchin cycle, the Wall cycle tends to fluctuate in Fibonacci ratios around the ideal lengths. Since monetary and fiscal stimulus is expanding the Kitchin cycles, and making them run long, it is also expanding the Wall cycles. They often run long in exact Fibonacci ratio extensions. Below is the cycle forecaster for the Wall cycle that began on July 8, 2009 and ended on February 5, 2010. All Wall cycles are not all this accomodative with the Fibonacci Wall cycle bottom forecaster, but often come very close.   

    Wall Cycle Forecaster 

    Combining cycle tracking in time with Fibonacci ratio extensions of the natural stock market cycles with Fibonacci drill-down grids in price is the essence of cycle research. Investors and traders can track stock market cycles with these methods, providing for entry, exit and stop loss strategy to reduce risk and improve performance.

    The global economy is now in a topping process in the final business cycle and stock market rally in the long wave that began in 1949. The long wave winter is the season of overproduction and debt deleveraging. The long wave winter season is in its final years, and they will be devastating for investors and traders that are not prepared.

    Global stock markets face long wave forces into an expected late 2012 long wave bottom. An important global stock market top is in the cards, and it could be sooner rather than later. The final leg down of the long wave winter season will derail the global stock market rally and could financially devastate unsuspecting investors and traders. The approach to long wave cycle analysis described in this article is fully explained in Jubilee on Wall Street (2009).    

    Tracking the global stock market cycles in price and time is essential for serious investors and traders. Joseph Schumpeter was a remarkable business cycle analyst, but the late great stock market cycle analyst PQ Wall wins the long wave business cycle count debate. There are 16 business cycles in a long wave. The current and last Kitchin cycle in this long wave is set up to roll over into 2012.



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: SDS, SH, SSO
    Jan 29 10:51 AM | Link | Comment!
  • Explaining the Heisenberg Omen of Human Action in Price and Time

    In a recent article, I introduced the notion that the Heisenberg uncertainty principle provides far more insight for investors and traders interested in market cycle analysis than the infamous Hindenburg Omen. Feedback from readers suggests many appreciated this new line of thinking, while others challenged the proposed application of hard science principles to the softer social science of the study of economic and market cycles. In this article, I will further explain precisely what I am proposing about human action, including yours, and the Heisenberg Omens.

    Quantum field theory applied to social cycles is a rather radical notion. The Austrian school believes business cycles are exclusively the product of monetary policy. Keynesians think they can control business cycles with monetary and fiscal policy, in spite of the mounting evidence, including piles of festering global debt, to the contrary. The carnage in the wake of bad monetary policy throughout history suggests the Austrian’s are far closer to the truth, but quantum field theory provides a possible explanation of why business cycles are there in the first place. It explains why bad monetary and fiscal policy produces extreme cycles. Instead of being the background noise of human purpose and progress, they can become full-blown, edge of the abyss, global crises.  

    Field theory offers a new horizon in global stock market and technical analysis. If the basic approach has merit, and the evidence is mounting every day regarding what appear to be fields of human action in global markets, the implications are rather far reaching. This includes the future of your nest egg, or that multi-billion dollar hedge fund you are managing. Field theory may provide a heads up regarding that heretofore-unpredictable black swan event that may be over the financial horizon.

    First things first, the implications of the work of James Clerk Maxwell (1831-1879) require a brief introduction. Maxwell was a Scottish theoretical physicist and mathematician that discovered the electromagnetic field. His contributions to science are considered to be on par with Albert Einstein and Isaac Newton. Maxwell’s work in field theory is the basis of much of the work of Einstein, and helped inspire Einstein to formulate the theory of special relativity. The following are quotes regarding Maxwell’s work in theoretical physics:

     " ... he conceived and developed the nature of the field and established the reality of the field as the underlying reality of all spatio-temporal (space-time) phenomena." 

     T.F. Torrance

    "Maxwell's equations are laws representing the struc­ture of the field .... All space is the scene of these laws and not, as for mechanical laws, only points in which matter or charges are present."

    Albert Einstein 

    If you take these two quotes at face value, you have to accept that there is the distinct possibility that anything occurring in space-time, including you reading this article, is occurring in a field. Anyone that has witnessed pure unadulterated global financial panic, such as 2007-2009, or the ensuing rally, is aware that the madness of crowds is an indication of some sort of field of groupthink. Whether we can track such social fields is the real question.

    If you have ever studied a stock, bond, gold or commodity chart you cannot help but recognize that they manifest field like characteristics. From fear induced pessimistic troughs they rise to delusional heights of unfounded hope for future returns, driven by bouts of optimism and the madness of crowds. Then the recognition of reality and gravity kicks in and the cycle tops and tumbles to a low, starting this human action driven market cycle process all over again. Undoubtedly, all these different scale market cycles of boom and bust exhibit field like characteristics.

    Here is where Heisenberg kicks in. The Heisenberg uncertainty principle states that certain pairs of physical properties, position and momentum being some of the favorites of the hard science physicists, cannot be simultaneously known to a high degree of precision. The more accurately you measure one property, the less accurately you can measure the other. Heisenberg’s microscope thought experiment is used to explain the uncertainty principle and illustrates that the instrument that measures the properties of a field interferes with and affects the measurement. Essentially, the instrument affects the field and can change it.


    Now we all know that investors and traders are keenly interested in the two properties of price and time. These two properties determine your entry and exit from investment or trading positions. Fortunately, both of these properties can be measured simultaneously with an acceptable degree of precision for a specific security or asset, otherwise trading and investing would be a rather confusing proposition. However, if you add millions of such transactions together in a market index, they reflect a sum of human action that manifest as an ebb and flow with field like characteristics.  

    When you make a decision to buy a house, sell a car, buy a stock, or short the municipal bond market, brown bag it, go out to lunch, or go to the gym, a special scientific instrument is at work. The instrument at work is your God given mind and your reason, your human will in action. Your decisions are based on objective as well as subjective inputs from an untold number of sources at work in the field of human action including potentially your reason, your emotions, your boss, or your spouse. Your individual decisions are a part of the economic field in space-time generated by human action. You are affecting the field of the business cycle and related market cycles, directly or indirectly. Your human action produces real results and affects the field of human action. Your human action counts and helps create the field.  

    When millions buy houses with excessive amounts of debt at historically high prices, it sends ripples through the field of global economic and financial activity. When Chairman Bernanke of the Federal Reserve embarks on a $600 plus billion dollar QE policy, or lower interest rates, it has an impact on the economic field and stock market cycles. In fact, that is specifically why he is taking action. Based on the application of his reason and input from the Board, he is attempting to alter the field of human action and its outcome.  

    Granted, the proposed cross-discipline application of fields has more than a few hurtles. The field theory approach to economics and market cycles suggests that all financial and economic activity is occurring in fields of human action. When Chairman Bernanke, and his staff, measure prices and pursue policies to insure “maximum” employment, the human mind is the instrument that is doing the measuring and then taking policy action, and affecting the reaction of millions in various fields of human action that are affecting markets. Are these measurements or the policy action accurate? Whether they are or not, they are being absorbed into the field of human action that you can observe unfolding on a stock chart.

    Pursing answers to the questions generated by the application of fields to human action to the economy and market cycles, I read Aharonov and Petersen’s Quantum Theory and Beyond, who suggested:

     "…to measure the momentum of a field according to the canonical method one would need an interac­tion proportional to the momentum and to some external degree of freedom belonging to the apparatus."

    For students of stock market cycles this notion of an external degree of freedom immediately brings to mind Fibonacci ratios, which appear to represent degrees of freedom at work in all manner of markets and nature. There is a long history of the application of Fibonacci to financial markets and stock market cycles in price and time.

    This idea of degrees of freedom began many years of testing new approaches of Fibonacci in price and time against the long wave family of stock market cycles. It has created an entirely new approach to stock market cycles, as well as cycles in bonds, gold and any asset that prints a record of price and time on a chart. What I have discovered suggests that cycles have “ideal” lengths, but they fluctuate in Fibonacci degrees of freedom in time.

    It was the late great PQ Wall who first suggested, to my knowledge, that there is a corollary between quantum field theory and the fields of human action in global stock markets. The global long wave cycle of boom and bust, discovered by Kondratieff, is just one such a field of human action. However, it was also the brilliant mind of PQ Wall that proposed that a long wave divided by 144 is the 20-Week trader’s cycle, and a miniature long wave, the cycle I rechristened as the Wall cycle in my book The K Wave (1995) McGraw-Hill.

    The chart below demonstrates the Wall cycle fields of human action unfolding in the S&P 500 since the infamous March 2009 bottom. There are nine Wall cycles in every business cycle. The cycle that ran from July 8, 2009 to February 5, 2010 was an exact 50% extension of the “ideal” 141.9-Day Wall cycle. The hundreds of billions of dollars in well-intended interference of the ebb and flow of the field known as the Wall cycle have make tracking cycle in price and time a lot more difficult. Nevertheless, if this field theory method has merit, human action in the current Wall cycle field has been pushed optimism about the future to an extreme, and has stored up what will be a potent antidote of pessimism into the upcoming Wall cycle bottom.  

    The Wall Cycles of Human Action

    Fibonacci applied to the notion of degrees of freedom in ideal cycles in time has created an entirely new approach to tracking cycles in time, from the long wave to the 20-Week cycle and the smaller cycles. The Fibonacci 50% extension degree of freedom is projecting a bottom in late January, while the golden ratio degree of freedom in this Wall cycle is coming up in mid-February. However, it should be noted that the Wall cycle bottom in key emerging markets likely came with the November/December weekly stochastic lows in certain markets. Developed markets do not look like they have transitioned from the Wall cycle field that began on July 1, 2010 to a new cycle field.  

    The Fibonacci price drill-down grid method I created based on decades of Fibonacci price grid research has discovered what appear to be an entirely new approach to the degrees of freedom in the fields of human action at work in price. From price in the big cycles down to intraday cycles, all markets appear to be driven by interconnected fields of price action, clearly driven by human action. Below is the current Level 2 drill-down Fibonacci price grid. This grid is derived from the Fibonacci targets between two sequential Fibonacci targets in the Level 1 grid. The Level 1 grid is produced from the S&P 500 1982 intraday low and the 2007 intraday high. Further drilling down into the Level 3 and Level 4 grids, to reveal the intraday grids, will change your view of stock market cycle analysis in price forever.  

    Level 2 Fibonacci Price Grid

    The Fibonacci turns in both price and time are essentially Heisenberg Omens. These Heisenberg Omens can be used by investors and traders to identify important turning points in price and time. After identifying the active Level 1 grid in any market, investors and traders can use the Fibonacci drill-down grids as a highly practical method for indentifying entry, exit and stop loss targets in any market in the Level 2, Level 3 and Level 4 grids. The S&P has now moved into the Fibonacci Dynamic Web Normal range in the Level 2 grid.

    The actionable takeaway is that an overbought Wall cycle is topping now. If the market drops back below the inverse golden ratio target of 1278.95, which it struggled to get above, the market is likely headed for a Wall cycle low. Shorting using the SPX, SDS or SH if it drops below S&P 500 1278.95, with appropriate Level 2 or 3 stop loss protection, could be an appropriate strategy at this time for traders that understand the risks. Targets in the Level 1 and Level 2 grids will help identify the upcoming low of the Wall cycle. The March 2009 Wall cycle low was right at the 38.2% Level 1 target. The July 2010 Wall cycle low was at the Level 1 golden ratio target in the S&P 500 of 1013.

    The chart below demonstrates the Level 2 Fibonacci drill-down targets around the Level 1 target of S&P 500 1228. You may agrees with subscribers that have observed that the drill-down Fibonacci grid lines on a chart read like sheet music.  

    The instrument of human action produces Fibonacci ratios in markets in price and time. Fibonacci Dynamic Web targets in the Level 4 grid often turn the market down to one-one hundredth of a point. These reflect the degrees of freedom in human action in global markets and in stock market cycles. They are regular Heisenberg omens, reflecting the instrument of the human mind and human action at work in the global marketplace, exercising reason in pursuit of purpose.

    Global markets are currently at an important inflection point in the fields of human action in the Wall cycle. The human action of Chairman Bernanke is attempting to control the human action of most of the developed world, which is in the midst of the great debt deleveraging of a long wave winter season.

    The May 2010 flash crash was a release of pent up energy from artificial stimulus in the fields of human action on the way to the Wall cycle bottom on July 1, 2010. The central banks and governments of the developed world have now doubled down, attempting to prevent the fields of human action from turning south, even for just a healthy and always temporary reset of human action sentiment. Should we be trying to eliminate the fields? Would it be wise to eliminate the natural winter if we could? It would destroy the world if we did. What is it we fear so much?  

    It is worth pondering whether the central bank sponsored human action that has injected hundreds of billions in stimulus has overridden the expected field, and launched a new one. Alternatively, has it merely postponed the day of reckoning for this Wall cycle? We will get the answers to these questions shortly. We are riding the fields together. All fields of human action end and the baton is passed to the next field in the space-time continuum of the human odyssey.

    Stock market charts reflect the human sentiment of fear and its associated human action that brings regular bouts of selling to markets. Such fear now appears suspended in space, but time is still ticking. An extreme in the human action driving sentiment of optimism has unfolded. Fear is marking time.

    Human action, yours included, like Chairman Bernanke’s, is a powerful instrument that can alter the outcome of the fields of human action, but not eliminate them. Nature has imposed degrees of freedom. Human action has built and destroyed civilizations over the millennia. Maybe during this long wave winter we will have an opportunity to get human action right, and deliver a new golden age of peace and prosperity. I like to call that possibility The Great Republic. It is closer than you think. It only needs the right human action.

     

     

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I'm going to submit this as "article", since a prior version of the article was posted to a few site before I received your request for updating it for a premium article. However, this version has been improved substantially with additional charts and more actionable information. I'd like it to be premium, so please change it to that status if possible. I was not aware of your premium program. I'm interesting in bumping up my commitment to work on these articles and shooting for premium status. If you run this version as premium, I will not submit this much improved version to other sites. Let me know. Thanks.
    Tags: SDS, SH
    Jan 15 3:34 PM | Link | Comment!
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