Huge growth patterns in markets — more commonly known as “bubbles” — have a remarkable timing signature common to every single one of them – they all have lasted 64 or 65 months from initial growth to blow-off top.
The above introductory comments are edited excerpts from an article* by David Nichols (fractalgoldreport.com) as posted on Safehaven.com under the title Special Report: The 64-Month Pattern in Stocks and Gold.
Nichols goes on to say in further edited excerpts:
This includes the 3 biggest bubbles in modern market history:
– the Dow into the 1929 peak:
– the Nikkei into the 1989 peak:
– the Nasdaq 100 into the 2000 peak:
– Crude oil into 2008:
Statistically the chance that these pattern alignments can be explained by random chance is essentially zero.
The correlation gets even more compelling when we zoom in and look at the way these 64/65 month patterns develop, as there are calibration points along the way to let us know whether it is tracking as expected. The most significant characteristic of these bubble patterns is the huge vertical move that starts after a Month 45 low.
You can see this clearly on just about every previous bubble pattern — prices go ballistic during the late stages, from Month 45 to Month 64 or 65 and, sure enough, this is exactly what has happened on the current pattern for the S&P 500.
Is this time different? Is this relentlessly linear drive into the upper right quadrant of the chart the “new normal”? That is the battle cry of every bubble naysayer and Fed defender but market history tells us that the most dangerous words in financial markets are “this time it’s different”.
No matter how you feel about the Fed and the unprecedented flood of central bank supplied liquidity, the simple fact is this thesis can only levitate markets as long as people believe it is having an effect. The Fed cannot prevent money from exiting stocks if the collective psyche of investors switches from complacency to a sudden fear of loss.
This switch in market psyche can happen quickly in a sudden rush of recognition, or it can develop more slowly, infecting groups of individuals at different times. In equities it typically develops slowly, and the early returns on this pattern indicate that this current top is likely to develop as just such a slow-roller.
The time to exit this pattern at Month 65 has already come and gone, in late July 2014. The markets have now entered an unstable period that is designed to make you confused and anxious about your positioning — no matter what it is. Everybody will be under attack.
Right now (September 2014) bullish investors are getting a reprieve with a “tail whip” back to the upside. This is when a market whips back on all those who are too quick to jump on the weakness in an obviously overvalued market — which this one certainly is — so the market clears the decks of positions on both sides before the full correction can occur…
This brings up a philosophical question about when a market pattern actually tops out. I would argue that this topping point is the first high — when the market stops going up, but doesn’t necessarily start going down in earnest. The risk of holding long positions goes up significantly from this initial topping point, in spite of any marginal new highs in subsequent trading.
I think we’re at a similar point now. Avoiding the confusion of this unstable post-bubble high will serve you very well in the long run, as you will be in the correct mind-set to jump on opportunities on the long side after the correction has played out, or even during it, if you can be more nimble.
The next important timing point on this growth pattern is Month 69, which arrives in November. Most of the time Month 69 is a very important destination after Month 64/65…and then Month 72, in February 2015. Both of these timing points should be critical, and at this point it looks likely that both will be significant lows.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.safehaven.com/print/35456/special-report-the-64-month-pattern-in-stocks-and-gold (Copyright © 2008-2014 Fractal Gold Report. All Rights Reserved.)
If you liked this article then “Follow the munKNEE” & get each new post via
No stock market crash (a decline greater than 15%) has occurred over the past 30 years without the presence of a Hindenburg Omen except on one occasion (the mini-crash of July/August 2011). As such, without an official confirmed Hindenburg Omen, we are pretty safe from experiencing a major stock market correction. On the other hand, if we have an official Hindenburg Omen, then a critical set of market conditions necessary for a stock market crash exists. As of September 19th, 2014, we have such a condition in the market… Read More »
The Russell 3000, a broad equity index representing 98% of the investable U.S. stock market, is up 9.3% for 2014 on a total-return basis…[but] the median total return for Russell 3000 constituents is just 1.5% reflecting the fact that small- and mid-cap stocks are under-performing… This current alarming deterioration in breadth, a term that refers to how much of the market is participating in the advance, begs the question: “Is the stock market sitting on a trap door?” This article looks at 2 trap door indicators that suggest that that might, indeed, be the case. Read More »
Is a major top at hand? It is often said that bells do not ring to signal the end of a bull market but if the broad averages were in fact to plummet in the weeks ahead, never forget that bells did indeed ring. This article contains the opinions of three heavyweights in the guru world which are so insightful that any investors who ignore their observations do so at their great peril. Read More »
The 10-year yield’s Death Cross has proven to be a pretty significant risk-off shot across the bow over the last decade and this matters today because the 10-year yield put in a Death Cross back in early April of this year. So what does the 10-Year’s Death Cross mean for stocks this time? Read More »
The financial markets are drastically over-capitalizing earnings and over-valuing all asset classes so, as the Fed and its central bank confederates around the world increasingly run out of excuses for extending the radical monetary experiments of the present era, even the gamblers will come to recognize who is really the Wile E Coyote in the piece. Then they will panic. Read More »
Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett and it is now at the second highest level in the past 60 years – even surpassing the levels reached in 2007. Read More »
To ignore all the compelling charts and data below would be irresponsible and, as such, will NOT go unnoticed by institutional investors. Such bearish barometers for stocks worldwide will, unfortunately, be ignored by the ignorant and gullible hoi pollo causing them severe financial loss as investor complacency in the past has nearly always led to a stock market crash. Read More »
In their infinite wisdom the Fed thinks they have rescued the economy by inflating asset prices and creating a so called “wealth affect”. In reality they have created the conditions for the next Great Depression and now it’s just a matter of time…[until] the forces of regression collapse this parabolic structure. When they do it will drag the global economy into the next depression. Let me explain further. Read More »
Once again the stock market is in full bubble mode. The market was already overvalued earlier this year and the froth continues to build. Valuations are off the chart and euphoria is setting in while, at the same time, you have inflation eroding the purchasing power of regular Americans not participating in this casino. All the signs of a bubble top are there – massive speculation, unexplainable valuations, and blind optimism – even though the fundamentals don’t make any sense. This article substantiates that contention. Read More »
Who knows how long before the Dow Jones Index finally receives a well overdue market enema, but I can assure you of this, when it arrives it will be a VERY messy occasion! Read More »
Large numbers of people believe that an economic crash is coming next year based on a 7-year cycle of economic crashes that goes all the way back to the Great Depression. Such a premise is very controversial – some of you will love it, and some of you will think that it is utter rubbish – so I just present the bare bone facts below for you decide for yourself if it is something to seriously consider protecting yourself from in 2015. Read More »
Our financial system is in far worse shape than it was just prior to the financial crash of 2008. The truth is that we are right on schedule for the next great financial crash. You can choose to ignore the warnings if you would like but, ultimately, time will reveal who was right and who was wrong and, unfortunately, I think I will be proven to have been right. Read More »
It is frighteningly clear to any objective analyst and/or intelligent investor that the present bull market rally in stocks (2006-2014) is “beyond the pale” (outside the bounds of acceptable behavior) i.e. the excess valuation is dangerously above the market excesses of the 1920s. Read More »
When taking a step back and viewing longer-term gauges, we see warning signs flashing. Many of these readings are in extreme territories, and historically bear markets have occurred from such overbought positioning. We are all cued up for a bear! Read More »
The stock market is presently a roulette wheel with dimes on black and dynamite on red. We continue to have extreme concerns about the extent of potential market losses over the completion of the present market cycle. Read More »
You have to get out of stocks. Stocks have bubbled again and when they go down they’re going to go down hard. Read More »
Amazingly, we are on the verge of a global deflationary downturn and what could be a historic bear market, yet Wall Street prognosticators remain focused on the inflationary risks of excessive monetary stimulus. Their focus could not be more wrong. Let me explain further. Read More »
With valuations stretched, investors seem to be justifying their stock purchases here with the argument that we have yet to reach the mania of 1999-2000 but history has shown us that there doesn’t have to be a bubble for there to be a sharp decline in stocks. As we saw in 2007, it doesn’t mean there is no risk of a significant market decline or that valuations are compelling and that investors should be expecting above average long-term returns from here. They should not. Read More »