via Birinyi Associates, comes this great pictograph of the past month’s performance.

Major Equity Indices July 2006 Returns*click for larger graph*

Note the breadth chart at bottom.

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via Birinyi Associates, comes this great pictograph of the past month’s performance.

Major Equity Indices July 2006 Returns*click for larger graph*

Note the breadth chart at bottom.

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Is it possible that the macroeconomy operates according to near ideal noncomplex mathematical laws? Would this really be so surprising? Mightnít one expect natural laws as part and integral to a very nonrandom process that is ultimately quantified in the integers 0 through 9?

The alcove of the Economic Fractalist has posed such a hypothesis – that the global macroeconomy with its integrative money growth, money growth cresting, and ultimately money decline, that is, its credit cycle, is exactly represented by simple quantum fractal growth and decline natural laws directly reflected in the daily and weekly and yearly trading valuations of its great composite equity, bond, and commodity markets. In a prospective fashion a mathematical x/2.5x/2.5x discontinuous fractal growth has been identified that appears to represent the limits of the global credit cycle system.

While the integrative process is a complex mixture of facilitated debt and money creation, resultant asset and commodity inflation, ultimately limited by ongoing wages, consumption saturation, and increasing debt obligations via accelerating debt instruments, e.g., ARMS -the predictable evolution of the summation quantum simple patterns strongly appear to herald major directional changes.

Such a change occurred for the Wilshire 5000, the composite US equity proxy marker, on 5 May 2006. That day represented the secondary closing high for the Wilshire after its a 142 year credit growth cycle from its predecessor stock summation proxy indicators starting in 1858 and ending in March of 2000. 5 May 2006, the secondary high to March 2000, was marked by a minutely exhaustion gap with a closing high for the last 6 years.

Now on 4 August 2006, another possible minutely high exhaustion gap high has occurred accompanied by a very curious sequential exhaustion gap to the low side – covering the same trading valuation territory – all within the same day.

The x/2.5x/2.5x extended fractal evolution from the Wilshireís lows in 2002 and 2003 to its 5 May 2006 closing high has been well described in the serial posting of EF. From the October 2005 low, the daily fractal pattern has been:

x/2.5x/2x/1.5x or 12/30/24/18 days.

Day 18 initiated a new fractal sequence with a 21-22 day base.:

21/53/53 or x/2.5x/2.5x with day 53 of the third fractal growth sequence 4 August 2006.

Interestingly day 42 – exactly 2X of the 21 day base – of the second fractal growth sequence was 5 May 2006.

Was 4 August 2006 – the final x/2.5x/2.5x extended lower high representing the second shoulder of the 5 May 2006 second shoulder to the March 2000 high?

The US ten-year note has ominously inverted below the 3-month treasury for the last two trading days. Ten-year treasuries at near 5 percent in a massive deflationary environment would seem the prudent investment – and expected natural money flow move.

As always expect the discontinuous and the nonlinear -unexpected. Lammert

per garylammert:

“From the October 2005 low, the daily fractal pattern has been:

x/2.5x/2x/1.5x or 12/30/24/18 days.

Day 18 initiated a new fractal sequence with a 21-22 day base.:

21/53/53 or x/2.5x/2.5x with day 53 of the third fractal growth sequence 4 August 2006.”

I was with you until we got to this part- a new sequence was initiated why/how? This looks an awful lot like backfitting analysis to match history to me.

I would agree that something weird and possibly important happened Friday, but it seems to me that even if you accept that fractals provide some explanation of market movements, it’s backward-looking and of little practical use unless there is some way of accurately detecting whether the sequence has morphed.

It’s much easier and probably more useful to simply accept that cycles exist over the intermediate to long term and that given sectors exhibit typical behaviors at different points during a typical cycle. But that’s just a broad way of anticipating what comes next that does not involve any assumptions about the duration or amplitude of cycles.

But I’m listening if you care to expound on this.

garylammert, you had me at,

“integers 0 through 9 fractal sequential exhaustion gap to the low side”

I am afraid that I am not. If you must attempt to analyze the market with fractals, at least do it this way: http://www.ess.ucla.edu/faculty/sornette/prediction/index.asp#prediction

Sure, they threw in the towel with, “[w]e have discontinued the update since its was targeted at the “antibubble” which has transformed itself and the present Landau formulas do not apply anymore..” However, their approach had the advantage of not being gobbledygook.

Moreover, I am not as convinced that they are wrong about where the index goes: http://www.ess.ucla.edu/faculty/sornette/prediction/images/20050819_FigSP_pop.gif

I am, however, pretty sure that their market analysis, as distinct from their math, suffers from a lack of grounding and experience in the subject matter.

TLT was up 2.1% for the month.

And GLD was up 3.1%.

BSI87, i bought some TLT over a month ago, what are your thoughts if the Fed does not raise on Tues? do you think the curve will steepen? i don’t see how it can’t if inflation continues to threaten. I’m thinking of swapping my TLT for some SHY-

Lammert: I give you the wisom of Gartman:

“The greatest traders/investors we’ve had the honor to know over the years continue to employ the simplest trading schemes. They draw simple trend lines, they see and act on simple technical signals, they react swiftly, and they attribute it to their knowledge gained over the years that

complexity is the home of the young and untested.”Here is the one thing I do I know: “I don’t know”

I don’t know whether the FED will pause or hike.

And frankly, I don’t care. Seems to me we are in a period of economic transition. In turbulent times, I want to pare back risk by hedging and trading smaller, allocating more to cash. I will be in long/short pairs going into the FOMC, very close to dollar value neutral, having sold the weakest sectors and bought the strongest. When a direction is established in the next higher time frame from what I trade, I will cut loose the hedges and let the other halves of the pairs ride until technicals indicate otherwise. Normally, I step aside altogether for FED days, but this one feels like we’ll get a substantial move once the intial volatility plays out, hence the pairs.

That’s not a bad scheme Alaskan Pete, but I’m not going to try to fully hedge just because my time horizon for SPY puts is March and I don’t mind seeing them red for a while if that’s what needs to happen. I’ve also got some XLE calls that will probably do okay regardless.

But I did put a little money into a currency trading subaccount and bought NZD against USD- the basic idea is that NZD is very high yielding and likely to jump if there is a Pause!, enough to hand me a one-bagger (because I am using a lot of leverage); if there isn’t a Pause!, then I’ll eat at least some of it but that’s okay because my puts will be sweet.

I was going to use a USD/JPY short for this, but backed out after I learned that there is a holiday in Japan this week and you never know how that’s going to impact things. At any rate, we’ll all find out what happens the hard way, but I will be watching the currency markets very carefully Tuesday morning for signs that the fix is in one way or another- I personally don’t think that everything is decided “at the meeting,” I think it’s worked out over the preceding days at least enough to determine the red/black part of things and that means that there will be a leak.

Phil

Depends on your situation. I bought some 30 yr bonds when they got up to 5-5.3% yield. It was to have some non correlated assets against equity positions.

TIP looks interesting compared to TLT. I have a small position in those.

The one thing to keep in mind is that IEF,SHY,TLT, etc could scream on the upside if we run into any financial situation like LTCM or the Thai currency meltdown. Not saying it will but I feel having some bonds takes some volatility out along with offering some risk mgt.

JMO.