The Bubble Composite

"As Mark Twain said, 'history does not repeat itself, but it does rhyme' There is a certain rhythm to secular bear markets in that they often take a similar shape in magnitude and duration. Secular bear markets can last anywhere from 10-15 years and I have created a bubble composite based on three well known bubbles and secular bull market tops. The bubbles I used were the Dow Jones from the 1929 peak (Great Depression), gold’s 1980 top (beginning of The Great Moderation), and the Nikkei’s 1989 top (Japan’s Lost Decade). Taking the average path of the three bubbles and overlaying the data with the NASDAQ’s 2000 market top showed that there was a likelihood that 2010 would contain the next major market peak and that we would then have a long slide into the next low in 2013. The bubble composite has been uncannily accurate and projected a market peak in the first half of 2010 followed by a short snap back rally before plunging back to the 2009 lows. Given the bubble composite is an average of three paths the day to day noise is a bit filtered out though the declining trend for the next few years is as clear as day and is not the least bit encouraging."
Chris Pupluva

A very intriguing analysis:
http://financialsense.com/contributors/chris-puplava/when-the-market-speaks-listen

My intrigue with fractals is well known.
http://randomroving.blogspot.com/2001/09/chaos-fractals-and-complexity.html

The Slope of The Sand Pile

In my college geology class we learned about the angle of repose of a sand pile. I often run this experiment while sitting on the beach. Build a pile of dry sand into a cone shape and at this magical point, the sand can no longer build up and it cascades down the side of the pile or cone. The physics behind it relates to the angle and slope of the cone with relation to the ground. A limit exists regarding the slope of the pile.

As with sand piles, the charts of stocks, market indices, and even species population curves reveal that an angle of repose appears to exist elsewhere in nature. Maybe this is some sort of natural law or a limit to growth.

The famous market crash of 1929 charted below illustrates an unsustainable slope.

The great Japanese crash or the "Lost Decade" as it's been titled. Twenty eight years and they're still in recovery. Remember when we wanted to be "everything Japanese"? Remember the Total Quality Management craze?

We all were able to experience the Tech Boom and the great ending orchestrated by the Dotcom mania. What a finale' it was. How about the slope on that curve?

The most recent is the Dow Jones Industrial Average charted below. The upward slope is not that steep because the real slope occurred up to mid-1999. The 2000-2008 slope was artificially stimulated by the money printing of the Federal Reserve.



The oil industry is still realing from the dramatic price crash of 2008. A steep advance and steep decline create beautiful symmetry.



And we can't forget everyone's favorite, Enron. While a few bad characters were the manipulators, many others were part of the process.
I presented the chart below a few weeks ago. It aligns investor psychology with the process that has played out many times over the past thousands of years. Don't forget the great Tulip Mania in Holland. It took place in 1637. The human limbic system has a long history of mania behavior.