S&P 500 Pre-Fed Update

ES/S&P 500 Futures

This is the FRACTAL nature of the universe, markets, and our model….

The definition of a “fractal” is - a curve or geometric figure, each part of which has the same statistical character as the whole. Fractals are useful in modeling structures (such as eroded coastlines or snowflakes) in which similar patterns recur at progressively smaller scales, and in describing partly random or chaotic phenomena such as crystal growth, fluid turbulence, and galaxy formation.

We know that in mathematics and all around us in nature, we find these sacred patterns of geometry. Its just a part of the design of how consciousness iterates itself in the physical, and its part of the divine that shows itself in matter.

When it comes to markets these same patterns of price exists but more importantly what creates a pattern in markets - is TIME. You see you can’t have a pattern of price at all-time highs or all-time lows for example. You only have one data set at one new point in TIME. The patterns that form Technical Analysis can’t just focus on price levels because you need the TIME component to allow for those price prints to form over a given time series.

Also we know the significance of geometry as it pertains to space but there is a geometry of TIME as well.

One of the major frequencies for the Global Business Cycle is 8.6 years. What’s interesting about 8.6 is it amounts to Pi (3.14) x 1,000 days. The derivatives of Pi - the perfect cycle- are many, an we use this Pi Cycle on different durations in our model and in our trading. The mathematical constants of Pi are well known but its numerical significance shows itself in cyclical wave structures as well, sine and cosine functions repeat with the period 2π. This shows that there is an underlying structure and geometry of not just space but also to TIME.

As it relates to the S&P 500 and trading, lets look at the fractal nature of the most recent pullback and the downtrend that stocks have been in. Below is the chart of S&P E-mins with the Daily chart on the left and the Weekly chart on the right.

When ES broke the 4600 area at the start of the year (we also call this location the “Bands” or “TMS” in our model) but once that area broke, the probability of a much deeper setback toward the 200 period moving average is very likely. This happens time and time again on back-tests. If you don’t hold the 200 you will often get a full Pi Cycle back to the dotted line we call our Pi Line. That is exactly where price held in January first the time down. From there price bounced to test the upside of the “Bands”, failed and then resumed to new lower lows on the year, and that is about the same levels the market is trading at currently.

If you look at the WEEKLY chart to right of the DAILY. You will see the same fractal process…..If the S&P 500 doesn’t hold the Feb 21 lows (4101) on a weekly basis, then the odds and probability increase significantly that we see a test of the 200ma on the weekly down near 3410 call it. Also if that doesn’t hold there is risk of a full weekly Pi Cycle back down to 3033 area.

These are the levels that we are watching and that we care about on a weekly and daily closing basis.

More updates to follow post Fed and into this week’s close.

Cheers and best of luck out there,

JJ