25 May 2005

New Growth Fractal or Preceding Predominant Decay Cycle Dependent?


The minutely exhaustion gaps of the Wilshire 5000 occurring several days ago
will be filled just like the nonlinear gaps downward several weeks ago have
been filled on the upside. The question is: will this downward path take
out previous multi-monthly lows leading to a major nonlinear gap downward
and stock market crash devaluation?

A major growth fractal sequence started on August 12, 2004 with the first
growth fractal having a base of 52(x) days. An ideal low was made exactly on
day 2.5X or day 130 of the second growth fractal. The precision supports the
general fractal hypothesis. Additionally a nonlinear break occurred in the
last 0.5x period of this second fractal. May 24, 2005 was day 18 of
potentially a 2X or 104 day third fractal growth sequence. Some of the
positives from the macro economy to support this third growth fractal are 1)
a not yet busted housing bubble with strong recent housing sales data, 2)
moderate job growth rate, and 3) very low interest rates - rates below the
rate of inflation. 

Against this ying growth fractal is extremely powerful, perfect-thus-far
yang decay fractal. The perfect 40/100/100 day fractal sequence starting
January 26, 2004 and ending on January 3, 2005 has been alluded to many
times. The second 100-day fractal sequence is fascinating because it too is
composed of a perfect x/2.5x fractal pattern of 29 and 72 days. Because the
beginning of this 100 day sequence was the end of a 106/257(265 ideal)
X/2.5X sequence starting on 9 October 2002 (the low after 911), the down
going 100 days could appropriately represent a sub cycle base for a
subsequent final decay fractal sequence. The peak on January 3, 2005 was day
199 of the 106/257(265 ideal)/199 (212 ideal) X/2.5X/2X growth sequence
starting in October 2002. Interestingly as the Fed raised short-term
interest rates a shortening of the ideal time frames for the subsequent
fractal cycles has occurred with the ideal bases being shortened from 106 to
103(2.5X = 257) to 99.5(2.X = 199).

The ideal top for a second fractal with a base of 100 (X) is 2X
or day 200. Since the end of the 100 day fractal sequence on August 12, 2004
there have been 52/130/18 days or 198 days (subtract 2 days for double
counting.) If there is a nonlinear break downward within the next five
days, leading to a later break through the multi-month lows, this
predominant decay fractal sequence will be confirmed. In the context of a
predominant decay cycle the last 28 days after the nonlinear break of the
second growth fractal could be interpreted as a caricaturized terminal
growth fractal completing the 52/130/28 day (ten borrowed from the second
fractal) sequence.

The macroeconomics supporting the predominant decay fractal scenario has
been often cited. If a major devaluation did occur shortly no one would be
surprised after integrating the ongoing substantial bad with the paltry good
macroeconomic data. Recent data suggesting a contracting money supply
further tilts the scales. Expect the majority of traders to miss the lower
top of the 140 year great second fractal cycle starting in 1858. Time will
tell if this is the end of that extended cycle.

G. Lammert