-- Posted Friday, 14 May 2010 | | Source: GoldSeek.com
By David Knox Barker
Theory is no substitute for experience and the honed instincts of investors and traders. However, it is reasonable to inquire as to the origins of those instincts. Successful investors and traders appear to recognize subtle patterns and trends in markets ahead of the crowd. They invest and trade accordingly. The new Theory 144 approach to technical analysis is in pursuit of the principals behind the patterns and trends in the stock market.
Accurately forecasting the stock market’s patterns and trends is the goal of cycle research. Fibonacci ratios create patterns that act as support and resistance for prices. They are an established tool for stock market pattern and trend analysis. What is not widely appreciated is the remarkable potential for adding Fibonacci cycles in time to the mix for market analysis. To clarify, Fibonacci time zones are not the time cycle method used by Theory 144.
Fibonacci ratios are the result of a process of growth and decay in natural phenomena. Modern physics teaches us that anything that exists in space-time is part of a field. Deeply embedded in these fields are Fibonacci ratios that govern development of everything around us. This means that Caterpillar selling bulldozers to China, millions of Americans buying iPads instead of paying their monthly mortgage, and the big five banks trading markets higher with each other, and then bragging about their record of no trading losses for Q1, are all human activities that occur in fields of human activity over time.
Human actions and their impact on markets, including the results of extreme swings in fear and greed witnessed last week, occur in such fields. Stock market cycles that show up on a major index chart serve as a CT scan of these fields. Major market indexes print the fields of human activity for the study of cycles, for which technical analyst are eternally grateful.
Fibonacci ratios exerting a force on prices are an accepted fact, so why shouldn’t Fibonacci ratios also exert observable forces over unfolding time. One way of looking at Theory 144 Fibonacci analysis is that a cycle’s price movement is guided by vertical Fibonacci ratios in space, while a cycle’s length is guided by Fibonacci ratios in time.
Looking for Fibonacci ratios in time suggests the existence of a natural ideal length in various cycles, such as a business cycle, around which Fibonacci ratios in time relative to the ideal would trigger regular cycle bottoms. The transition from one cycle to the next would represent an expected phase transition to a new field in space-time. Mother Nature likes to mark her phase boundaries in many areas such as morphic fields in microbiology. Theory 144 suggests that natural and predictable phase boundaries also appear to apply to stock market cycles that provide an outline of fields of human action, sufficient for analysis.
Identifying a natural “ideal” cycle length was the goal of research in pursuit of Fibonacci cycles in time. A cycle is not expected to always be its ideal length. The artificial actions of government intervention, regulation, and global central banks interfere with natural market cycles, typically making them longer and extreme. Central banks can turn up the heat on markets with lower interest rates, or arbitrarily remove the growth feeding oxygen of liquidity. Cycles tend to run longer than normal when juiced with artifical stimulus. Research in System Dynamics at MIT confirmed this fact about cycles.
This is not the time or place to go into detail, but a quest to identify the anticipated natural lengths of market cycles involved extensive research. Using a clear stock market cycle bottom as a starting point, a potential ideal cycle length was selected, i.e., an ideal cycle target bottom date in the future. Tests determined if the Fibonacci ratios in time around that ideal length produced regular hits in the form of cycle bottoms.
The results were startling. Testing results produced a hit. Discovery of an ideal cycle length came by taking an ideal business cycle length of 42 months and then dividing by nine cycles, as established in the work of PQ Wall. This produced the ideal length of what is often referred to as the 20-week cycle, what we call the Wall cycle. The ideal length is not 20-weeks, but 141.9 days. The frequency of Fibonacci ratio hits in time around the ideal length of these cycles is far too consistent to be coincidence. The Theory 144 name comes from the fact that an “ideal” long wave divided by 144 produces the “ideal” 141.9-day Wall cycle.
LongWaveDynamcis.com has created Fibonacci cycle forecaster tools to generate ideal date targets and the Fibonacci ratio targets for all the essential stock market cycles. The Fibonacci cycle date forecasting tools enhance the power of the Fibonacci price forecasting tools. These tools compliment other methods of technical and fundamental analysis.
A current Theory 144 crash alert comes from the fact that a number of essential stock market cycles are now at a critical juncture. In the month of June, there is a convergence of date targets generated by the Theory 144 cycle forecasters. The current long wave is running longer than its ideal target, juiced by government intervention and aggressive monetary policy. The long wave forecaster has a longer than ideal Fibonacci ratio 9.03% target coming up on June 18, 2010.
The flash crash on May 6, 2010 appears to have ended a Quarter Wall cycle, but not the Wall cycle. The market was not oversold enough on the weekly chart to end the Wall cycle, suggesting the May 6 low will not hold.
There is an ideal Wall cycle target only a week past the long wave forecaster date. There is also a “shorter than ideal” Fibonacci ratio target for the Wall cycle on June 19, 2010, within one day of the long wave forecaster target. The Quarter Wall forecaster with a start date on the flash crash low date of May 6, 2010 has a Fibonacci ratio of the ideal target date on June 18, 2010. The short cycle forecasters for the Wall and Quarter Wall are more dependable that the larger cycles. This many Fibonacci time cycle target dates from the short cycles to the long wave cycle clustered so tightly is unusual.
Cycle research also suggests the stock market cycle rally of the final business cycle of this long wave is reaching exhaustion. Volume is declining. The stock market will peak six months or more before the business cycle, which could be the current period. The long wave and the long wave winter cycles are both pointed down. “Sell in May and go away”, is not just an old Wall Street saw, it has a stunning and impressive history.
It is possible that the trillion-dollar European bailout buys the post March 2009 stock market rally more time. A trillion dollars should still buy you something, even these days. Although the gold market appears to be telling us that a trillion dollars just isn’t what it used to be, and that a global currency crisis is in the offing in the final years of this long wave.
It is not expected, but when the cycle forecaster target dates do not produce cycle bottoms, they often produce tops. If the market rallies into the late June period, then the next cycle bottom for the Wall cycle bottom that is in conjunction with larger cycles target dates come in late August to early September. However, the odds now favor a possible Wall cycle bottom in late June. The Elliott wave count also appears to suggest that the May 6, 2010 bottom was the end of a wave 1, and the following rally was wave 2. An Elliott third wave turning down hard into June would fit nicely with the count of Theory 144 Fibonacci cycles in time.
Fibonacci cycles in time provide a new set of tools for investors and traders to apply to stock market cycle analysis. This article has only briefly touched on how knowledge of Fibonacci cycles in time can benefit investors and traders. Complete details are available at LongWaveDynamics.com. The Long Wave Dynamics Letter reviews all the essential stock market cycles every month, and includes the Fibonacci cycle forecaster for each cycle with detailed cycle analysis. Fibonacci price grids are also included in every issue. Fibonacci price and time cycle tools are provided online for subscribers. The book Jubilee on Wall Street; An Optimistic Look at the Global Financial Crash, contains a chapter that explains Theory 144 in more detail.
Fibonacci stock market cycle analysis in price and time does not replace good instincts, but results thus far suggest it provides valuable stock market cycle input to backup the instincts of investors and traders. In conclusion, buckle up; the flash crash was only the beginning.
David Knox Barker is author of Jubilee on Wall Street; An Optimistic Look at the Global Financial Crash, Updated and Expanded Edition (2009). He is the founder of LongWaveDynamics.com, and the publisher and editor of The Long Wave Dynamics Letter.
-- Posted Friday, 14 May 2010 | Digg This Article
| Source: GoldSeek.com
