Understanding Fractals and the Current Market Environment ..
Posted on February 6, 2014 Leave a Comment
I promise this isn’t going to be a mathematical treatise on the math/geometry behind fractals. We’re going to go down the rabbit hole, slightly, in order to 1) get an understanding of what a fractal is and then 2) relate the current market environment using the Down Jones Transports. We could use more, but that would 1) take too long and 2) I ask that you defy human nature and do the work to prove for yourself. I’m more than happy to answer any questions on a separate thread.
This is from http://mathworld.wolfram.com/Fractal.html : “A fractal is an object or quantity that displays self-similarity, in a somewhat technical sense, on all scales. (my bold) The object need not exhibit exactly the same structure at all scales, but the same “type” of structures must appear on all scales. ” For those not familiar w/ Elliott Wave Theory this is where the “form and proportion” comes into play ….
famous fractal picture ..note how from the LARGE to the SMALL the PATTERN repeats!
For the moment, direct your attention to the far right of the picture above. The large object is the beginning of the PATTERN and produces the form/geometry of all the fractals that will be “spun out” to the most infinitesimal scales. If you spend a modicum of time studying the picture you’ll see that the large “seed” pattern to the right is repeated over and over and over ….
Our thesis is, w/in the traded universe of securities, that PATTERNS do exist and they occur on different time frames and scales but, ultimately, these patterns do repeat. W/ an understanding of the mathematical and geometrical properties present, an edge can be produced to put probability in our favor. Remember, an edge is simply a higher probability of something occurring than not occurring. The patterns DO NOT work every time, but over time they do produce and edge. If we can wrap them into the context of the circle of life (fixed income, equities (global and CONUS), FX, commodities) then we can potentially make accurate forecasts of inflection points.
Let’s go back to the picture above … the pattern had to start somewhere. As discussed, the pattern started to the far right. W/in the world of traded securities we use the IPO date or, say, an all time high or low to begin forming the pattern that all smaller fractals/patterns will respect. That is usually from a monthly chart or an .xls spreadsheet w/ the historical data from inception. The patterns that exist in the entire history of this data will, ultimately, make their way to the tick time frame.
So, w/ regard to say the Dow Jones Transports we know that the all time low was 45.59 on 10/29/1896. Additionally, there have been multiple posts over the past couple months looking for the 7580-7620 area to be a PATTERN COMPLETING. This pattern, for all intensive purposes, has completed. And, while it did not hit the pattern level exactly, it did come w/in .003% after 42,281 days. Perhaps slippage, perhaps my lines were too thick … w/ the 5% down day after the level was hit, I’ll say it’s close enough for government work. Here’s the latest post:
The PATTERN that completed was a basic measured move and using the seed of the pattern from the all time low we were then able to REPRODUCE that measured move and PROJECT where this measured move would complete a similar move and produce a PROBABLE area of major resistance. Thus far, the market respected this area.
What does this mean …? Well, again, in the context of the fractal pattern present it means we are correcting a pattern that took 42,281 days to complete. So, the probability of a “large” correction is favorable. HOWEVER, in the context of the history of the Dow Jones Transports this could be an amazing BUYING opportunity but not after a 40-60% percent correction. If we are a day trader or a daily swing trader then this seems catastrophic. However, if we keep in mind that a PATTERN has completed that is 114 years in the making THEN we realize in the history of the Dow Jones Transports a MONTHLY swing low has never been broken. Last thing … this PATTERN could fail to the upside and then, well, it’s off to the races. The power of the PATTERNS is we know, almost exactly, where the pattern completes.
So … PATTERNS exist, some BIG PATTERNS have completed across the circle of life and, not a bullish pattern is present. The probability is that the market will respect these LARGE PATTERNS and cause a correction that in the minds of the twitter/facebook/”have to have it now” world will seem crazy and chaotic. But, if you step back and take a moment to respect the historical context of this moment, you can 1) adjust your portfolio accordingly and 2) be calm and understand that after this correction an even bigger pattern is now being formed which might be and AMAZING BUYING opportunity …
That will be hard to do … when, this time, blood is truly in the streets. It’s all probability ….
Bart
Utilities as a safe play … not yet!
Posted on February 3, 2014 1 Comment
there has been speculation that Utilities are a safe play in a deflationary environment. I don’t know what the fundamentals say, but I do believe we are starting another wave down in the Utilities. After a very clear 5 waves down into the low of 2009, they have behaved much like everything and bounced rather nicely. One caveat … they didn’t make a new high as the rest of the indices were soaring. So, where do I “think” they are now …? If we neck down into a daily chart I am going to say the “bounce” from 2009 ended in April 2013 in/around 540. That’s either a BIG 2 or BIG B. Since then we carved a very “Ray Charles” count in 5 waves and just completed (today) the last leg of a triangle labeled a-b-c-d-e. If we take out the triple top at 512 then perhaps a little higher, a little change count and we can make it a-b-c. What am I trying to say … we have completed a CORRECTIVE PATTERN either HERE or a little higher and the utilities should start down in a potentially violent and large way.
the other thing I see is a FOLDBACK pattern that has folded back up the 2000-2002 meltdown. That puts us cresting at the top for another fall …patterns SUGGEST we foldback down to the left in a bear market for utilities.
long term look at a potential foldback in the DJUA
going thru the heavy weights that make up the S&P …
Posted on February 2, 2014 Leave a Comment
in Mid-December 2013 we went thru the top weighted (by percentage) sectors in the S&P after the most re-weighting … at the time, most of them were either finishing or approaching or hitting sell patterns. As of this writing, the patterns have held w/ no significant failures or break-outs. this is bearish … only time will tell if we have entered a CONTINUATION of the bear market that began in 2000. here is the link to the post mentioned at the beginning of this diatribe:
updated charts showing where we are w/ regard to the patterns:
Copper and the Emerging Markets (EEM ETF)
Posted on February 1, 2014 Leave a Comment
Copper is important … it’s still a major player w/ regard to the global economy and is something that should be watched. We also think Copper made a very important wave 5 top … here’s the chart as the top was getting made (I want to provide “real time “charts” so there is no “could of, would of, should of”). It certainly counts a 5 wave move UP being complete.
TOP in COPPER approaching in 12/2010
WHY IS THIS SO IMPORTANT … well, if we do, in fact, have this count right then the corrective move in COPPER HAS A LOT MORE TO GO. Here’s the updated chart and note the “neckline” that most everyone can see. Bottom line is this neckline is a big deal and, particularly to the EEM ETF. (Emerging Markets)
Copper as of Feb 2014
here is the EEM ETF (daily) and NOTE HOW IMPORTANT THE 37-38 LEVEL IS FOR THIS ETF. It’s completed a pattern and we had some good buying occurring at the key level but IT NEEDS TO HOLD.
EEM NEEDS TO HOLD CURRENT LEVELS
EEM weekly potential head and shoulders
now, why the diatribe about Copper above? Well, this next chart is Copper overlaid on top of EEM. Note the synchronicity … pretty well lined up.
EEM and COPPER overlaid
PUNCH LINE:
- IF COPPER has 5 wave top THEN it has more correcting and downside. Potentially substantial …
- IF COPPER and EEM synchronicity to remain THEN EEM pattern that is noted on the DAILY EEM chart will, ultimately, fail.
- IF COPPER and EEM break necklines THEN substantial selling coming in the future for not only COPPER but also the Emerging Markets.
- THERFORE: don’t be LONG EEM.
Make it a great weekend …. B
Missing $LNKD in the chain updated from September 2013
Posted on February 1, 2014 1 Comment
$LNKD has been correcting since the top in September 2013 …it’s been a series of lower highs and lower lows so nothing is glaringly bullish EXCEPT the high was noted as a 3. So, ultimately, this corrective move in LNKD should be bought. the first and normal target is the end of the 4th wave of a lesser degree and that’s around 160. also, note the time component — the wave 2 correction is noted by the blue shaded box and then copy/pasted and shows from a time perspective that we could work 2 more month’s into the equation. Here’s the chart posted in September 13′:
Nearing a TOP, caveat emptor
Here’s the updated chart:
LNKD some more correcting?
the last thing I want to show is the Gold/Silver index? TILT…hugh? All I want to show is how the same PATTERN appears to be forming on LNKD and how, ultimately, it cracked and then down she went…don’t worry about the index being shown, just note the PATTERN of distribution before “they” pulled the plug.
PATTERN at the TOP appears to be the same FRACTAL as LNKD.
update on the high flyers …
Posted on January 31, 2014 3 Comments
my last post on the high flyers was the following:
A look at the high flyers in 2014 – all lower significantly!
here’s the update:
AMZN
GOOG
PCLN
Transports pattern complete from 42,281 days ago …
Posted on January 25, 2014 2 Comments
I’m going to give myself .003% w/ regards to the pattern being complete on the Dow Jones Transportation Average. It never did hit, exactly, the 7616 target …but w/ the big move that occurred yesterday odds are that we have a MAJOR top in place. If you have been following my blog this “target” area has been forecast for a while …
I’m a pure play pattern recognition technician. I pay major attention when using “nodes” that are 42,281 days ago. I also pay particular attention when this “node” from 10/29/1896 has been responsible for support and resistance at every major top and bottom in my lifetime.
we finished a MAJOR pattern …the reaction is not surprising.
I type this blog, today, not because I did anything special. Simply, for the past couple weeks I knew a pattern was completing on the transports in this area. And, having been down the travels of a professional trader and succumbing to expectations, having to be right, etc. I simply have now trained my persona to EXPECT NOTHING. It’s a PATTERN and it will either work or it won’t …
Now, that being said, I do ask that you (my fellow bloggers) think about what could potentially be at work here … did the major institutions know this level before I did? I doubt it … did the Federal Reserve have someone tell them that the Transports were going to encounter major resistance? Again, doubtful. Did Warren Buffet have this knowledge? No, I submit nobody was CONSCIOUSLY aware of this level. But, FOR WHATEVER REASON, the psyche, emotions, feelings FLIPPED ON A DIME. At the PATTERN level EVERYONE SOLD. Think about it … no CNBC, no FAST MONEY, no fundamental talking head pundit … a NUMBER was hit (natural square OBTW) and bada bing bong boom EVERYONE SOLD. Take a moment and think about that one …
It worked, the GOOG, YHOO and others didn’t … it’s all probability.
W/ that in mind, the PROBABILITY is rising, albeit slowly, that we are on the cusp of the biggest bear market we have EVER experienced in this country or world.
As for me, I’m just going to wait for a PATTERN and deploy capital …
Make it a great weekend
Bart
DJTA 4 HOUR CHART
DJ Transports … 1896-2013
today, 01/24/2013, looking for a close in/around 4125-4128 to SQUARE OUT all time low
Posted on January 24, 2014 Leave a Comment
believe it or not, TIME and PRICE are interchangeable and they are the same “thing” when it comes to charts … big lows and big highs will ALWAYS tie themselves mathematically to calendar day, solar time, square roots, etc… so in the midst of today’s sell off we’ll look for a close on the NASDQ around 4125-4128. (take into account the weekend). I am writing this 6 minutes before the close …
looked for a square out once before …. https://bartscharts.com/2014/01/05/look-for-a-close-inaround-4106-on-nasdaq-tomorrow-equality-of-time-and-price/
this technique is not a panacea, but it is certainly a good idea to see and understand where these time/price correspondences come into play …
stay tuned …
Bart
important ratios – revisited
Posted on January 21, 2014 Leave a Comment
For those who have been following me since I started this summer, you’ll find I spend considerable amount of time analyzing the RELATIVE STRENGTH of the STAPLES vs the S&P. Why? The theory is that, in times of volatility and/or bearishness the “big guys” (read: institutions) will rotate into a defensive posture such as staples. We need “staples” to live … water bottles, food stuffs, toilet paper, toothpaste, etc. This does not mean that they won’t go down it simply means they are stronger from a relative strength basis. If the ratios is GOING UP then volatility and bearishness is taking place … if the ratio is going DOWN then “good times” are here and, generally speaking, it’s BULLISH. Where I take it to another level is in the pattern recognition … by using advanced pattern recognition techniques across the entire circle of life I try to develop a thesis and then deploy capital in the most risk adjusted manner …
here’s a list of some of the staples work:
https://bartscharts.com//?s=staples
- the week of October 07, 2013 we have an AMAZING BUY of the ratio that was precise in both PRICE and TIME. It hit, the market sold off but it was subsequently taken out and the PATTERN FAILED. End result: BULLISH for the stock market.
- it was also noted, that the .02 level was a potential target. at the beginning of the new year this target was hit and, while it held intraday it has been subsequently been defeated. In my mind, I try to stay away from intraday spike highs or spike lows …however, if we get a weekly close below a pattern level THEN, probability says it’s a failed pattern. Take a look at the below chart … we have a weekly close below. End result: BULLISH for the stock market.
- so … while we aren’t too far below the level depicted (1.27 and .786 overlap – usually strong support) I can tell you we need to get back up above and close above on a daily basis that level OR this S&P move could continue.
- also, I put my trust weekly 14 period RSI in to check out the “zones” for it’s support or resistance … I went back as far as my data would allow and I can tell you that 1) we have bullish divergence on the DAILY chart and on the weekly this is the lowest the RSI has ever been.
note, do we have two patterns failing on the important XLP/SPX ratio?
note at major turns, the ratio gives a good idea of inflections … it needs to turn up (xlp/spx) for the bearish case
the other ratio we have looked at is the Walmart Greeter ratio … same thought process, except this is a single stock. The “whole world” loves WMT so if the volatility comes back, THEN, the “big boys” will rotate to that defensive hallmark of Walmartians. Guess what, it completed it’s pattern TODAY and, should go any lower …if the bear case is to be credible w/ our ratio’s. Here’s the last post on the Walmartians:
Walmartians relative strength vs the SPX
pattern complete
PUNCH LINE: these patterns are complete. for the bears to have a chance, they SHOULD NOT fail …..
DJTA … 120 points away from MAJOR pattern completing
Posted on January 15, 2014 1 Comment
Almost there … DJTA
the vibration of the DJTA since inception … pretty cool
Bart's Charts 