Well, Hello Fractals.... Dow 3-Year Chart Now and Then (2008, 2009)

So the 2nd quarter GDP comes in lower than expected, but the obligatory dive of the stock market at the open was quickly eradicated. Dow Jones Industrial Average is down only about 10 points, instead of 100 points. For now, at least (9:30 AM PST).

Nothing to trade here, so I started my game of pattern recognition in the 3-year Dow daily chart. And I'm seeing something interesting. I'm not claiming it definitely, but I'm just sharing.

I see a pattern from October 2008 to June 2009 being repeated, albeit on a smaller scale and shorter time frame: diminution.


We know what happened after April 2009. It seems like QE2 in some form is all but guaranteed. Are we going to have another melt-up on low volume, going into the November election?

But you may also notice that the current pattern looks very similar to the pattern right after the market top, from December 2007 to April 2008. We know what happened after that. The stock market went up in April and May, making TA people giddy with the idea that the chart is forming a big "cup and handle" pattern and that the upside would be so great when that pattern breaks to the upside. And then June came, and it was all downhill from there...


So, take your pick. Or don't pick at all and join people who have been yanking their money from the equity mutual funds.

The Cardinal Climax is coming. Just so you know.

Uncanny Resemblance: Dow Intraday vs One-Year Daily

It's possible I'm imagining things. Probable, even. But I just wanted to quickly share. The top chart is Dow Jones Industrial Average intraday for today (August 28, 2009). The bottom is also Dow, 11-month daily.

Fractal nature of patterns, or my hallucination, LOL.

Dow July-October 2007, Augmented, Fractal

Dow charts again today, as I noticed a curious thing. I was looking at the Dow Jones Industrial Average 3-year daily chart that covered the period during which the index ran to the top in October 2007. It suddenly occurred to me that what we've been experiencing since October 2008 is basically the repeat of July - October 2007, except it's taking much longer this time and on a much bigger scale.

To show you what I mean, take a look at these charts. The top chart is Dow daily chart from July 17 to October 15, 2007. The bottom chart is Dow weekly chart from the week of September 22, 2008 up to now. The top chart, daily. The bottom chart, weekly. Don't they look very similar?


The blog post's title, "Augmented", refers to a musical term. In music and music theory, "augmentation" is lengthening and/or widening of rhythms, melodies, and intervals. The same construction of the passage but the time is extended and the content (rhythm, melodies, etc) exaggerated. "Fractal" refers to a mathematical term. A fractal is generally "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole (wikipedia.org).

If what I'm seeing is an augmented market and the original was that of July-October 2007, then the top of the current run will be somewhere very close to the beginning of the swoon, which will bring Dow to about 11,240 - and that's where 61.8% Fibonacci retracement from the October 07 top to March 09 bottom sits, like I showed in yesterday's post. From the looks of them, we may have another 3 to 4 months till the market "tops" again, if I count the top chart's days as weeks in the bottom chart.

Mind you, I'm not saying that's what's going to happen. That's really a long way up. But I'm just fascinated that despite the market manipulations and all that high-frequency computer trading that wouldn't give @#$% to the mother nature, the index chart still manages to show what makes up the world - nature repeats the pattern in different sizes and time frequencies.

OT: Fractal and Chaos and Financial Markets

On Thursday (May 21) I posted this intraday chart of Treasury yields spiking out of nowhere (actually these yields started the day lower than the previous day). And I kept thinking "I've seen the pattern like this before..." but I couldn't remember at that time exactly what.


A sudden revelation happened a few minutes ago so I scrambled out of bed to look for them. So here they are:



The first one is the adjusted monetary base, courtesy of St. Louis Fed.






The second one is the size of the reserve, also from St. Louis Fed.





The third one is a daily chart of Dow Jones Industrial, from July 1, 2008 to November 24, 2008, flipped upside down and then flipped horizontally.

We tend to think change, any change, takes place gradually. In nature, including the financial markets, that's not always the case. It is often sudden and violent.

Although they are about different events with different time horizons, all these charts show the same characteristics: relative calm all the way up to a sudden, explosive move. There seems to be no stopping when that move is happening. After the initial thrust, they do fall back, but nowhere near the starting point. And they resume the upward thrust soon after.

I don't know how the energy that causes such sudden movement gets dissipated. Can it drop just as sudden? Or will it break the system for ever? Or will it take a very, very long time to repair the damage done? I'd better go back to my books on chaos theory.