The 64-Month Bubble Pattern

By: David Nichols | Tue, Mar 25, 2014
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Ben Bernanke, Janet Yellen, and Alan Greenspan have explicitly stated within the last few months that stock markets are not in a bubble.

History shows their track record on such predictions is embarrassing, which has left both Greenspan and Bernanke grasping for excuses after previous bubbles burst on their watch.

Soon it will be Janet Yellen's turn to backpedal, as there is simple-yet-compelling evidence that stock markets are indeed right now in an unsustainable growth pattern.

Yup, it's a bubble.

In what may come as a surprise to Fed Chairs and Nobel Laureates everywhere, it turns out the most valuable skill needed to identify a bubble in financial markets is the ability to count to 64.

All the "name-brand" market bubbles in history have lasted 64 months from initial growth to blow-off top. This includes the 3 biggest bubbles in modern market history:

This also includes more recent bubbles, such as home-builders into 2005, and crude oil into 2007.

If it's an unsustainable growth pattern heading for a crash, it carries this 64-month time signature.

Monthly Dow Chart from 1920s

Nikkei Index in 1980s

Nasdaq 100 - 64 Month growth pattern in late 1990s

As an interesting aside, the famous stock market crash in October 1987 had a slightly different -- but equally interesting -- time signature. The top in 1987 came at Month 61, with Month 64 turning out to be the post-crash low.

1987 Stock Market Crash

This pattern was different in that it turned out to be a sustainable pattern, with prices recovering fairly quickly to keep pushing relentlessly higher. It was just a hiccup -- or maybe a dry heave -- on the way to the epic bull market in the 1990s.

So why 64 months? Why that specific number?

That answer is beyond the scope of a short web post but the sound-bite explanation is because this is aligned with the fractal scaling constant that can be observed in all facets of human life on planet earth. It is not a coincidence that the retirement age is 65 years, or that there are 64 - 65 trading days in 3 calendar months (one season). These patterns work across all timeframes. A 64-day growth pattern is seen frequently during strong market uptrends, and it can also be readily observed on hourly charts, and even 5 minute charts.

It's fractal scaling. It's there to be observed by simply counting.

There is good news and bad news for the bulls on this current 64-month pattern.

Current 64 Month growth pattern in S&P 500 Index

The bad news is time is almost up on this pattern. The energy is set to flip to the downside in June, or possibly July of this year if the timing extends out to Month 65, which sometimes happens.

The good news for the bulls is often the end-stage of a bubble pattern brings on a huge upside explosion. So even though Month 64 arrives in just a few months there is still plenty of time for more gains -- even amazing gains.

There are some nuances to how these patterns play out during the end stages. Frequently there is a broad double top, and the configuration of timing of this particular 64-month growth pattern does suggest a double top is in store.

That could create a highly unstable and volatile environment for stock prices between now and July. I have been discussing the various scenarios for the end-stage of this pattern in my daily reports as there are straightforward ways to analyze this in real-time.

Interestingly, one of the individual stocks that is sure to become a cautionary tale about this particular bubble has already hit its 64 month high.

Priceline (PCLN) Bubble?

One final note: I have been tracking the growth in bitcoin for quite some time, well before the bubbly price behavior that has emerged over the past year in this emerging decentralized medium of exchange. I am purposely not calling it a currency as that carries connotations that seem to distract people from really examining the magnitude of this breakthrough in network design.

The really intriguing thing about Bitcoin is you can "buy stock" in the entire emerging ecosystem simply by owning some bitcoin. There was never a way to "buy SMTP" or "buy HTTP" or "buy WiFi" like there is now with Bitcoin.

There are classic timing signatures of a 64-month bubble pattern in the bitcoin chart, with the surges and corrections happening on schedule. The main difference is the scale of the price moves, which are unlike any previous growth pattern. The potential of this pattern is really quite staggering. I have just added a new section to my daily reports to discuss bitcoin, to keep subscribers up to date on this unprecedented bubble pattern.

 


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David Nichols

Author: David Nichols

David Nichols
email: editorial@fractalgoldreport.com
Fractal Gold Report

David Nichols

David Nichols publishes the Fractal Gold Report, a daily report covering the gold market using proprietary techniques that go beyond technical and fundamental analysis. The Fractal Gold Report is available by subscription here. Fractal Gold Report Disclosure.

David Nichols is a graduate of Yale University and a leader in the emerging field of fractal market analysis. This pioneering analytical approach studies the markets as chaotic, non-linear systems, addressing the predictability in financial markets. Fractal market analysis discovers the order hidden within the seemingly random chaos of the markets.

David is the editor of the Fractal Market Report and the Fractal Gold Report, daily subscription newsletters written in an easy-to-understand style that cover the markets using his proprietary techniques that go beyond technical and fundamental analysis.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/