Saturday, November 8, 2008

666 - S&P 500 and the 13 Year Cycle

in 2002 the S&P 500 index bottomed at 777. in 2009 the index will hit 666. if not exactly, pretty close. below 700 anyway. I think.

I don't usually take cycle theories very seriously and in fact any other time I've used one I've gotten into trouble. nevertheless I've identified a 13 year cycle in stock prices I find at least interesting enough to share with you.

this 13 year cycle runs in a sequence of two tops then a bottom. Bottom-Top-Top-Bottom-Top-Top-Bottom-&c.

so the last ten turns in this cycle would be thus:

2009 -- Bottom (?)
1996 -- Top (first impulse wave of the big bubble)
1983 -- Top (first impulse wave out of the recession)
1970 -- Bottom (not as low 74 but still a pretty major bottom)
1957 -- Top (large topping pattern beginning in 1956)
1944 -- Top (1943 would fit better)
1931 -- Bottom (1932 really)
1918 -- Top (1919 really)
1905 -- Top (beginning of 1906)
1892 -- Bottom (1893)

the Tops in the cycle in hindsight proved to be somewhat minor waves within much larger primary bull markets -- particularly the more recent ones. but they all seem to be important for their own reasons. on the other hand, the Bottoms in the cycle have been pretty major, though 1971 not as major as 1932 or even 1893.

as we take this cycle further back into history you can see that the years get off-set just a tad, but I think it holds up relatively well.

now in 1996 the S&P averaged 675 over the entire year, and many days closed almost exactly around 666. it first hit the mark in February, with a high that month of 667.10. then in May the index pierced above it (May 13th! = open 667, high 669.40, low 664.85, close 667.30) before falling back to the low 600s in June. the index's climb renewed once more later in the year, beginning the big impulse wave into 1998.

the reason why this all came to my attention is because I was looking at the stock market chart of the 1970s and noticed an obvious similarity to the pattern of this decade. I saw that the market low in 74 was around 13% below (a little more actually, the story goes better with 13) the low in 71. so I'm like, what would be 13% below the 2002 low of 777? 676. when was the last time the S&P traded there? 1996. and so the 13 year cycle was born.

furthermore, the relationship between the numbers 666 and 13 became of interest to me last year when the price of Gold and Silver repeatedly traded at 666 and 13 at the same time. so the Bimetallic Ratio of 51.230769230769230769230769230769 I coined 'The Devil's Ratio'.

and incidentally, if the S&P does hit 666 (or around there) it wouldn't surprise me at all to see Gold also trading in the 666 neighborhood at the same time. February 11, 1996 when the S&P first hit a high of 666.70, Comex Gold traded at 407.90. so early in 1996 the S&P/Gold Ratio was trading right in the 1.618 range. it just seems natural that at this next inflection point in the financial markets that the Ratio will trade 38.2% lower, or about 1. of course last month it was right about 1 for a moment.

I shouldn't do this, because it's almost guaranteed to be way off the mark, but below I've included a rough sketch of how the S&P might fulfill its 666 target. such a picture would nicely complete a five wave down pattern that began last year, and this five wave down pattern itself would represent the final leg of a 5-3-5 (ABC) bear market pattern that began in 2000. (oh yes, this is the same bear market that began in 2000. 03 to 07 was no bull market, but just a protracted suckers' rally.)