Powers of Ten

When I was a young boy, I fondly remember being transfixed by the short feature Powers of Ten shown at the National Air & Space Museum in Washington (the link shows you the same film). It's a completely mesmerizing piece to watch, even though it's about thirty years old and not exactly high tech (the cheesy post-60s spooky-synth music is a bit much).

This is the inspiration behind my posting today - to get a look at the big picture. In this case, the S&P 500 (which is a good enough proxy for the U.S. stock market in general). I'm delighted the Dow lost 120, of course, but I wanted to not make a daily report and instead remind us all what the theme behind my investing philosophy is: to take full advantage of what is likely going to be an extremely bearish market for years to come.

Let us first look at the past 75 years of the index, going back to the depths of the Great Depression. I've embellished this chart with a number of drawn objects as well as major historical themes. As always, click on any image to see a much bigger version.

In this instance, as you can see, there is plenty of room to fall. The bull market from 1982 through 2000 didn't create much in the way of a support zone anywhere, and in spite of what people might regard as a brutal bear market from 2001 to 2003, we are still at some extremely rich levels.


Now let's zoom in (hence the Powers of Ten theme) to the past decade or so. Here you can more plainly see the detail of the Fibonacci Fan as it relates to recent history, as well as the Fibonacci retracement levels. I've drawn an area to illustrate the likely path and speed of the market's fall for the next year or so.



Zooming closer, we see the support levels dictated by the Fibonacci lines. I've circled some likely zones to where the market will successively fall if weakness continues.



To me, the graph below is currently the most interesting, since it plainly illustrates how the index has not been able to conquer its current resistance level, and indeed, it has started to weaken. It would not takea lot of damage to the market for it to cut through that supporting trendline you see.



Finally, the minute-by-minute intraday graph gives us a view into the rounded top that has been forming. I've drawn a red line to illustrate the level which constitutes the top. If prices fall cleanly below this level, the odds of a continued fall are much stronger.


Everyone's fixated on Bernanke and Thursday's announcement. How tedious. Look, at some point, interest rate increases will stop. It won't save the market. Any more than 0% interest in Japan saved the Nikkei all through the 1990s. Expect the same, stupid spasm on Thursday after they announce that rates are up, or rates or down, or rates or unchanged, or Bernanke is going to shave off that stupid beard. It won't really matter in the end. It's just noise.