November 21, 2015

Fractals – key structures which foreshadow the Crash

Koch’s snowflake is a simple introduction to fractals. A fractal is a structure often found
in Nature, where the whole is echoed in its parts and sub-parts, while remaining the
same, no matter how much magnified or shrunk down. Fractal is term coined by Benoit
Mandelbrot who discovered them. His Mandelbrot set is truly amazing fractal which
required IBM’s mainframe computer to construct.
Koch’s snowflake below, is colored in the same as degrees of trend as the market, and
serves two facilitate your understanding Market fractals.

Figure #1 Koch’s Snowflake partial view

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Just as Koch’s snowflake, the repeating fractal of the greater whole previews the
conclusion long before it manifests. In the partial structure above, we can deduce with a
high degree of certainty, that the blue structure will have the same shape as the lower
degree fractals seen in green, aqua & lime green.

Figure #2 Koch’s Snowflake colored as degrees of market magnitude

Once you understand the simple concept above, grasping the analogous model of the
Market should be a cinch.

In the Market, the same colors as found in this snowflake above

represent orders of magnitude
Grand Supercycle magnitude is 16x the magnitude of Supercycle
Supercycle degree is 4x the magnitude of Supercycle,
Cycle degree is 2x the magnitude Primary, and
Primary degree is 2x the magnitude of Intermmediate

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Figure #3 RN Elliott’s Hypothetical Channel, materialized 1900-2015

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The big picture SPX below shows a partial view of the largest Bearish, Diag II fractal,
where the E wave will complete the structure as well as the Bear Market.

Figure #4 Diag II the Bear Market fractal since 1982

Within the larger structure seen in figure #4 you can discern lower degree Diag II fractals
at the beginning of waves A and C.

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 The same Diag II structure is currently developing in wave E in Figure #5.

Figure #5 SPX Wave E since inception

From where we are now in the S&P, a larger Diag II can be expected with guidelines
connecting waves I & III, II & IV.

Below in the SPX in 30-min magnification you see only the segment beginning II above,
showing three Diag IIs in sequence – the smallest is invisible in Daily intervals. The Diag
> in process indicates a dramatic reversal ahead. As shown by the arrows, the most
likely trajectory is first a drop to the area of 2050, followed by a final rally to complete the
upside near SPX 2109.

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 Figure #5a SPX 30-min intervals Wave 3 of Diag II - Nov 4 to Nov 20

The same structure occurs in most Bear Markets to herald a long duration. The long
plunge indicated in the A-wave, is continued in wave C with an intervening wave B, Bear
Market Rally.

Examples of Diag IIs to begin & end Bear Markets of Cycle Degree & higher
Below you see Supercycle (II) spanning 1906 & 1932. The Diag II in the (A)-wave is
echoed in Wave (C) to persist where (A) left off. Although the (A)-wave was truncated, to
mean the entropy of wave (B) was too strong to hold back. Most likely it evidences Fed
manipulation. (the Fed was instituted in 1914, to prevent crashes as occurred in 1906)
The result of Fed manipulation, then as now, is a far more severe Depression of the Fed’s
making. By forcing the (B) wave higher, it has all the longer trajectory to accelerate
velocity. It is the speed at which a Crash destroys capital that’s most frightening. Although
wave (C) ended 1932 was three times as severe as the crash, it occurred much slower, no
longer shocking as before. The longer distance fosters an accelerating free-fall for longer

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 than would have naturally occurred, in a market left to “self-correct” on its own. Like a
meteor striking the earth’s crust, a depression is inevitable.
Supercycle Wave (II) below in Figure #6, and the current Supercycle Wave (IV)
represent waves 2 & 4 of equal magnitude and approximate duration.

Figure #6 Supercycle Wave (II) – Bear Market 1906-1932

In Supercycle Wave (II) the larger Diag II to complete the (A)-wave was echoed in
waves A & C, and at the launch of wave (C), where the first wave down, analogous to
September 24 in the current structure, was the Crash. Then as now, post Crash, we can
expect the Fed to step in, to magnify the bounce into 1930, labeled wave ii above.
Incidentally, that’s why Buy & Hold will not work. As Investing legend Bernard Baruch
relates, he had sold short and gone away on vacation, before the Crash, expecting the
Market to continue down. Only to realize well into the 1930 bounce, when much of his
profits had been given back. To put Supercycle Wave (II) in context, find in the larger
chart in Figure #3 of the US Market since 1900.

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 Figure #7 Cycle Wave IV Bear Market –
Diag II in the A-wave 1966-1978 Analogously here Nov 20, 2015

Cycle Wave IV was a Cycle Bear Market 25% of a Supercycle Bear Market.
Nevertheless, wave e culminated in wave A as a 50% plunge. Note that here too, Diag II
fractals are ubiquitous in waves e of A and at the start of the culminating wave C.

Once you understand fractals, the ubiquitous Diag II equates to the crash just around
the corner.

Eduardo Mirahyes

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