5 November 2005
1929 Fractal Parallels with the Present
Elegant parallels exist for the current solution of the 2005 primary
fractal decay pattern with its younger sister some 76 years ago in
1929. The primary devolution sequences both have a classic y/2.5y/2.5y
fractal decay pattern.
The base number of days for the 1929 decay was 11 with a 11/27/27 day
pattern to the primary bottom. The best solution for current decay
pattern is 19/48/17 of 48 days with 31 trading days remaining to a
primary bottom.
In the final 27 day third fractal decay sequence in 1929, a large
exhaustion gap occurred between days 1 and 2, telltale of dying and
ultimatey to decline markets. The top valuation of the third decay
fractal occurred at a lower high on day 6. The final decay subfractal
sequence z/2.5z/2.5z of the 27 day third decay fractal was a 4/10/10
daily pattern taking the DJIA to its primary bottom. (Three days in
the 6/4/10/10 sequence are subtracted for double counting of the last
and first days of the sequential subfractals for a total of 27 days.)
The 2005 market best decay fractal solution is 19/48/17 of 48 days.
In these last 17 days, two notable daily exhaustion gaps have been
found in the NASDAQ between days 12 and 13 and again between days 15
and 16. On a minutely basis exhaustion gaps in the Wilshire were noted
on day 16 which were filled on day 17, Friday 4 November. The Nikkei
which at this point is the leading global equity market and
represents the economy  with the greatest savings, the most efficient
and quality manufacturing practices, a reasonable ratio of tort
lawyers to general population(less than 1/10 the United States), and
minimal expense for military defense expenditure made an exhaustion
gap to a multiyearly high on Friday 4 November 2005. These globally
occurring exhaustion gaps are telltale of the final saturation points
of the world equities.
If day 14 or day 16 of this final 48 day third fractal sequence for
the Wilshire becomes the base for a final subfractal sequence of
6/15/15 days, the 14or16/6/15/15 day sequence (minus 3 for double
counting) would total 47 or 49, very close to the ideal 48 day target
amount. The 1929 to 2005 base day ratios of 11/19 and 4/6 of the
primary/final subfractal sequences show intuitive proportionality.
TNX and TYX after their exhaustion gaps on day 38 of a 16/48/3848
x/2.5x/2x2.5x have continued to grow above the exhaustion gap and are
on day 45 of a potential 48 day sequence. The lack of a key reversal
day on day 38 of the third growth fractal was strongly suggestive of
continued growth with money continuing to flow from bond funds into
equity funds reminiscent of November 2004's post election mutual fund
bond liquidation and equity rally. With the recent exhaustion gaps of
the major world equity composites in the last two days, a peak
equilibrium point is nearly at hand with a reversal of money flow into
the debt market driving interest rates lower.
The equity market valuations could move further north if there is
enough investment money in the system for support. With the
countervailing forces of  inflationary fuel cost: e.g., heating oil
has risen in the last two year from a 20 year average of 60 cents a
gallon to 180 cents in the last two years: higher medical cost; higher
education cost; a cresting high end housing market; inadequate
increases in wages to compensate for consumer inflationary cost;
ongoing and increasing consumer debt obligations dependent on rising
fed fund rates; and a 70 year consumer saturation environment  it is
highly unlikely that substantial further growth of equities can occur.
The 3 August 2005 averaged daily high of the Wilshire remains the
Maginot line for total available investment money to show its true
residual quantitative power in the twilight period of this 70 or so
year global economic cycle.
Gary Lammert
