Today’s invited guest blogger is Denis Bouchard from Taiwan. Please check out his long-term historic viewpoint on Fibonacci waves and how he comes to view today's market. Feel free to comment on this blog.
Elliott Wave Insights, Part IV
The End of a Six Thousand Year Elliott Wave Cycle
It has been several years since Elliott Wave Insights, Part III was published. With the major markets near the cusp of a directional change, the present is a very appropriate time to take several steps back and consider the overall picture of the wave pattern. A bird's eye view of Elliott Waves from the beginning of human history may give us insights as to what lies ahead.
Strictly speaking the earliest stock market records are to be found in England's stock exchange going back to 1693. But as long as there have been humans sharing and bartering, buying and selling, there have been markets. The ebb and flow of economies has also been highly dependant upon economic environments influenced by property rights, levels of taxation, infrastructure, etc. A premise presented in Elliott Wave Insights, Part I was that the stock market peak in 2000 was probably the pinnacle of a five wave sequence that began with the fall of the Roman Empire back in 476 C.E. (Since then, the DJIA and the S&P 500 have gone on to new peaks. However, on an inflation adjusted basis, those peaks merely represent a double top.) The world economy throughout most of the last three centuries has been led by western European countries and the United States. Culturally, governmentally and economically, they are descendants of the Roman and Greek Empires. This article will consider in more detail the wave count since 476 C.E., but first let us examine the entire wave sequence going back to the beginning of human history. Amazingly, the five wave sequence going back nearly six thousand years can be constructed using only whole and half large Fibonacci numbers. For example from 476 to 2000 is almost exactly 610 years times 2.5.
The Super-Millennial Third Wave Peak and Wave Four
The Roman Empire, in its earlier centuries facilitated trade with its huge network of roads connecting vast reaches of territory. Its military was also its police system, enforcing the Pax Romana (Roman Peace). During most of the time that the Roman Empire existed, it was in decline economically. That empire gained dominance over the remnants of the Greek Empire during the second and first centuries B.C.E. Militarily, the empire's territory continued to expand until 116 C.E. under Trajan. However, by that time, the empire was already declining economically; government spending was more than was taken in by taxes and spoils of war. The major currency of the time, the silver denarius, began to be debased during the reign of Nero, about a half a century prior to the territorial zenith. The debasement continued over the centuries until denarii contained no silver at all. It is impossible to fix an exact date for the peak of the Empire, but it approximates the end of the 1st century C.E. From the year 100 to the fall of the empire is exactly 376 years. This entire period of time can be counted as a Super-Millennial fourth wave from an Elliott Wave viewpoint. If we arbitrarily fix a date for the peak, the year 99 C.E. would be an appropriate choice for two reasons: (1) It is very close to the dates provided by historical evidence, and (2) the stock market has shown that typically major fourth waves occur over a Fibonacci number of time units. (See table below.) So, the fourth wave, for our purposes of counting ran from 99 to 476 C.E., 377 years (a Fibonacci number).
|Dates of Elliott Fourth Waves||Number and Units||Comment|
|1929-32||3 years or 34 months||When viewed on an inflationary basis, the fourth wave could be viewed as lasting for 13 years, or as a triangle for 20 years, almost the Fibonacci 21, or 237.5 months, a little over the Fibonacci 233.|
|1987 Crash||55 Calendar Days||The peak in ‘87 to the trough in 1990 mayalso be viewed as a running flat fourth wave.|
|1990||89 Calendar Days|
A Reliable Guide to Chronology for Super-Millennial Waves 1 through 3
Where can be found an accurate accounting of the chronology of the western Eurasian world prior to the Roman Empire? Unfortunately, much of chronological history is hopeless fragmented. But there is a source that provides accurate chronology going back over six thousand years: the Bible. My reasoning is logical and simple on this matter: Since the Bible provides ample evidence of its divine authorship and even has chronological prophecies providing details of events centuries and even millennia in advance, surely it can be relied upon for providing accurate chronological details regarding early history. There are two outstanding chronological prophecies found in the book of Daniel. They were intentionally cryptic and not intended to be understood at the time of their writing. Details from other books of the Bible, including those written later, were necessary to solve their meaning. (Cf. Dan. 12:8-10) Both required the formula "a year for a day" (Eze. 4:6) to be properly understood. The first of these to be fulfilled was the "seventy weeks prophecy" (Dan. 9:24-27), which pointed to the times of the first arrival of the Messiah and his death, which were fulfilled in 29 and 33 C.E. respectively. The other prophecy, concerning "seven times" (Dan. 4:10-17), was even more cryptic. It prophesied that when "the seven times" ended, 'the Most High would give the Kingdom of mankind to the one whom he wants, even the lowliest one of mankind' (Dan. 4:17) It pointed forward to the year 1914 C.E. as the end of that time period. Other prophesies added details concerning this parousia (Greek for "presence") of the Messiah (the start of his heavenly reign in preparation for extending his rule over the earth) and the beginning of the last days. (Dan. 4:17; Ps. 110:1, 2; Matthew 24:3; Rev. 6:2 [cf. Ps 45:4-7]; Rev. 12:10) Although "wars and reports of wars" (Matt. 24:6) were to occur throughout history, prophecy indicated that at that time, warfare would take on a much greater scale, with "nation against nation and kingdom against kingdom" so that "peace would be taken away from the earth". (Matt. 24: 7; Rev. 6:4; 12:12) For the first time in history, world war began, and it started right on cue in 1914. (See Pay Attention to Daniel's Prophecy for more details about these two prophecies.)
Biblical chronological can be tied in with secular chronology with the earliest date they agree upon, which is the fall of the Babylonian Empire in 539 B.C.E. The dates from this time going back to the creation of the first man are given in the following chart, along with the relevant references from the Bible:
Clearly the decline of the Roman Empire was a down turn economically, but it pales in comparison to one that occurred over 24 centuries earlier. That was the Global Flood. The earth's population at that time could have been hundreds of millions, perhaps even over a billion, but was reduced to 8 people. From an Elliott Wave point of view, this constitutes the end of a super-millennial second wave. In essence, it was almost a double bottom from a population standpoint. But apparently, a major reason for the multi-decade exercise of building the ark was to force Noah and his family to learn about and preserve as much of the technology of that era as they possibly could. The long life spans for those sixteen hundred years prior to the flood had resulted in an explosion of technology. (Gen. 4:21-22) Therefore, after the Flood, as the Super-Millennial third wave began, technological advancement was able to build on previous knowledge, albeit not as rapidly as before, due to the shortening human lifespan.
The natural question that will arise in the minds of many is, "Wasn't the flood merely a myth?" Although it is beyond the scope of this article to thoroughly defend its historicity, there are a few points I would like to make: (1) Global Flood legends that have been passed down through the millennia can be found from distant corners of the earth, even in communities living high in mountainous regions. There are literally hundreds of them. This would be difficult to explain if there was not some factual basis for these legends. (2) Some thirty years ago, I asked my friend, Dr. D., who had a PhD in geology and who was working for a coal mining company, if he believed in the Global Flood. His answer was quite revealing, "Not only do I believe in the Global Flood, but every geologist I know believes in it. They just would not dare admit it publicly." Apparently, there is no lack of geological evidence for the flood. Due to cultural bias, for many Western intellectuals, science cannot include God. (3) One of the most complete chronologies of secular histories is found among the Chinese. According to the "bamboo chronology", the start of the reign of the first historical king in China (probably just a ruler of one of many city-states and its surrounding territory) was that of Yao in 2145 B.C.E., 224 years after the end of the Flood. From a time perspective that makes perfect sense. (4) The Weld-Blundell Prism, dating to just a few hundred years after the Flood, as well as other archeological evidence, gives powerful testimony to the historical accuracy of the Biblical account.
From the date of the Global Flood (2370 B.C.E.) to the peak of the Roman Empire (99 C.E.) is a period of 2468 years. (There is no zero year between 1 B.C.E. and 1 C.E.) Two and a half times 987 (a Fibonacci number) years comes to 2467.5 years, a precise hit! Even more amazing is that the Third and Fifth Super-Millennial Waves have exactly the Golden Ratio of 1.618 to 1.0. This is illustrated graphically and to scale, below:
I have not in any way adjusted the Biblical chronology to make it fit. This is really just the way the numbers fall into place! The dates chosen are from a Bible encyclopedia and can be verified with the cited Biblical references. The reader can easily find other examples where waves 3 and 5, in terms of time, are near to the Golden Ratio.
Can we extend the Super-Millennial Elliott Waves even further back? It would seem so. I have noticed that after a slowly declining second or fourth wave retracement, the first and second waves to the next lower degree combined often occur over a Fibonacci number of years (for example, late 1974 to early 1980). Could the same be true of the first and second super-Millennial waves? Interestingly, the Biblical account puts the creation of Adam 1656 years before the Great Flood, in 4026 B.C.E. The largest Fibonacci number, expressed in years that will fit within this time period is 1597. Counting back 1597 years from the Flood leads to 3967 B.C.E. So that is a purely hypothetical point for the beginning of Super-Millennial wave one. There is absolutely no evidence from the book of Genesis that any thing of major importance occurred in that year. What is more, there are several events in the account that could be counted as "the beginning of the world's economy". However, the thought occurred to me, that if that date was really of any importance, there might be patterns within Bible chronology that would point to that year. Of course, in any large body of numbers, there are going to be random patterns, but interestingly I found ten patterns, several of which seem to imply it represents some kind of begining. Let me illustrate that with just one of the ten:
In ancient Israel, after the Hebrews entered the Promised Land, their law stipulated a fifty year cycle. Every seventh year was a Sabbath Year (the 7th, 14th, 21st, 28th, 35th, 42nd and 49th years in the cycle), and every fiftieth year was a Jubilee Year. During Sabbath Years, no cultivation of the earth was allowed; the land was to "rest". During the fiftieth year, all those enslaved were freed and all land sold during the last 49 years was returned to the original owners. (Lev. 25:1-31) Similarly, counting from 3967 B.C.E., the Babylonian Exile period, which lasted 70 years, exactly coincides with the 49th seventy year period. The entire period is called "Sabbath" (2 Chron. 36:21b), and during that time, the land in Israel was completely abandoned and not cultivated (2 Kings 25:12, 26). At the beginning of the fiftieth 70 year period, the Jews who were held in captivity in Babylon, were freed and were allowed to return to their ancestral land. There seems to be a parallel between the Jubilee cycles of fifty years and the 3500 year (50 X 70) period from 3967 through 467 B.C.E. So it appears that there is additional hypothetical evidence, from a semi-independent source, that 3967 B.C.E. was a beginning of some importance.
The overall picture of the Super-Millennial five wave count is illustrated below and is drawn to scale.
Typically, a corrective wave, after a five wave sequence, must equal or exceed the largest of the second and fourth waves. The above model does not provide the length of the second wave. But the fourth wave appears to be 377 years long. In addition, the corrective waves should return to the fourth wave trough. Does that mean that the major market indexes are going to be correcting for at least the next 368 years and that the human economic condition is returning to the levels of the fifth century? Strictly from an Elliott Wave perspective, that remains a very remote possibility. However, there is another explanation.
The Extension within the Fifth Wave
The total economy, or GDP, as it were, is clearly correlated with population, although it is not a simple one to one correspondence. Too large a population, without an increase in technology, favorable laws and enforcement of laws protecting private property, or sufficient infrastructure will result in a worsening of the human condition and lowering of general wages. This results in a weaker economy due to over competition for jobs, for land and for other natural resources. There were enough favorable circumstances in the eighteenth century for a population explosion to begin accompanied by continued advancement in technology.
The chart above shows, that after a slowly climbing population for many centuries, a break-out occurred similar to a break-out of an Elliott Wave fifth wave extension. This leads to the following wave count for the period of 476 to 2000 C.E.
After a break above a major trend line, Elliott Wave Theory tells us that only the last five wave sequence need be corrected. It is possible, however, that it could be worse. There are many possible disaster scenarios that could be imagined, but we must just wait and see. If we hope for the best, the fourth wave trough of the sequence coming above the trend line would be the target for the correction.
The picture is made clearer, if we consider the American market indexes, such as the DJIA and the S&P 500 in inflation adjusted terms. Without adjusting for inflation, it would seem that the indexes at least must return to the top of the fourth wave trough, that is the high in 1929, and probably much lower. When adjusted for inflation, the forecast perhaps is not quite that dismal, although it is certainly not pretty.
Considering the current economic environment of deflation, not inflation, the adjustments for the changing value of the currency will be pushing the index lower. By the time the index completes its correction, we could be looking at early 1980's levels. So, where are the major market indexes now?
The following chart of the S&P 500 shows that the nadir of the market in March of this year surpassed the lows of 2002. Typically, the third wave of a third wave will break below (or above) the previous first wave. In a particularly strong market, the first wave, to the next lower degree can exceed the previous first wave. The latter interpretation appears to be the more plausible. Both interpretations are shown on the chart below.
Either way, the lows of March 2009 are almost certainly going to be taken out, probably within a year, at most. If the move down from October 2007 to March 2009 was a first wave, then what is coming is a third of a third wave. Within any particular five wave sequence, the third of third wave is often the strongest portion in terms of length and speed. However, if the former (and less likely) interpretation is correct, the crash of September and October of last year was the third of third wave, and we are likely to see the coming fifth wave carry the market to within a range of just below March's lows to perhaps 1994 levels. If the latter interpretation is correct, the coming rapid wave (not necessarily a crash) will likely go the levels of the late 1980's. The following recovery will find the March 2009 floor level has become the ceiling, followed by further down action. It is likely to be at least several more years before the ultimate bottom is found.
If recent history has any bearing, the coming down turn in stocks will also affect precious metals related stocks, and probably the metals prices as well.
Has the recent bear market correction, since March, finished? If the "a" wave (on the chart above) on a percentage basis is multiplied by 0.618 times and projected from the "a" wave completion, the anticipated peak for the "c" wave would be 1102.52. The high so far has been 1101.36. It appears that the next wave downward has already begun.
With a roughly six thousand year wave apparently completed, the potential for a very long and drawn out economic decline exists. Considering the extension of the 1800's, the stock market could ultimately see a decline to the early 1930's level or the early 1980's level on an inflation adjusted basis.
"Elliott Wave Insights, Part V, Conclusion", the next installment, will conclude this series.
The above content was provided by a reader of the Trader's Blog. If you too would like to contribute your own content to be published on the Trader's Blog, please email submissions to [email protected] Please keep in mind that we can not post all submitted material, but we will do our best to share everyone's ideas and articles.