In a recent edition of my Astrology E-Alert I weighed in on the topic of the megaphone pattern which many market analysts claim to be seeing right now.
Bulkowski in his Encyclopedia of Chart Patterns defines the megaphone pattern as one in which there is 2 lower bottoms and 3 higher tops. Following the 3rd top, there can be a nasty correction often in the 30% range. The image above shows this pattern.
If we next look at the S&P500, the argument for a megaphone falls apart because the so called 3rd top has actually broken out of the formation.
But, here is what is interesting. If one takes a measurement of the price increase on the S&P500 from the 2002 lows to the 2007 highs, that distance is about 819 points. The price rise from the 2009 lows to the current time is closing in on a Fibonacci 1.618 extension of the 2002-2007 move.
The story takes an added twist if one stops to consider the declination activity of Jupiter. Jupiter is a massive, slow-moving outer planet. It will carve out its declination maxima and minima slowly over about a 1.5 year time frame. From one maxima to the next maxima ( or from one minima to the next minima) will be 12 years. Curiously enough if one looks at these maxima and minima events, one will note that important market actions have aligned to them. From 2000 to 2002, Jupiter slowly registered its maximum declination. The North American equity markets peaked, sold off and bottomed in this time. From 2007 to 2009, equity markets sold off and made a critical bottom. From 2013 to present, Jupiter can be seen making a declination maximum. We have North American equity markets now at important highs ( many say too high for the economic fundamentals…). We further have the S&P500 at a critical 1.618 Fibonacci extension.
The entire subject of economic cycles is a fascinating one. I highly recommend the writings of U.K. economist Fred Harrison. He talks about the 18 year economic cycle (which in my opinion is the McWhirter 18.6 year cycle). He notes that in every cycle there is a period of attitude adjustment which comes about 7 years into a cycle. We are now approaching that point in the current cycle.
So…adding up the evidence leads me to conclude that: (1) the economic fundamentals are decent, but they could be a whole lot better. (2) Jupiter is making its declination maximum which in past has aligned to significant market action. (3) The S&P500 is making a Fibonacci 1.618 extension. I would say we are headed for a corrective phase of some sort on the equity markets. Once this correction runs its course, the remainder of the economic cycle will play out. The latter parts of these 18 year cycles are usually the most powerful. We could well see the S&P500 correct and then go on to make serious new highs in the coming years. But…caveat emptor…the current cycle will probably peak in 2023 and make a sickening completion low in late 2026 ( with a Jupiter declination maxima).