The Dreaded Triple Top Cometh

The market seems to be in its final run to an epic Triple Top back to 2000. Chris Martenson supplies a nice piece of analysis, expecting a 40% drop after we top. His chart shows this in the S&P:

Zoran Gayer, whose analysis updated Wave Theory with Chaos Theory, demonstrated how triple tops are good indicators pf trend changes. The Chaos Theory view, which is based on Thermodynamics, is that markets move in Thrusts and Plateaus, where a Plateau is the market on the edge of chaos, seeking order. A Thrust is order. All non-linear chaotic systems show this behavior, including weather and market economics. The formation in the S&P is a classic Plateau after a really strong thrust up in the ’90s. The Plateau does not pre-determine the next Thrust, but Zoran found that after a triple touch of a trendline, the Plateau usually was showing exhaustion and the Thurst coming out of it would be the other way. In 2002-3, for example, we had a strong Thrust down, then a triple bottom in what he called the Iraqi War Triangle, followed by a Thrust up into 2007 that marked one of the largest asset bubbles of all time.

The timing of the triple top looks to be within the next few months. Seasonal patterns usually top around April or May, followed by a correction into September. Some pundits (like Neely) expect a sharp rise towards SP1600 in March, with a top in early April. Whichever it is, expect a bit of a throw-over at the end and then a really sharp “bifurcation” move down to mark the top.

The Plateau since 2000 marks a huge experiment with economic history, where all of us are the guinea pigs: central banks are trying to apply the lessons learned in the Great Depression to reflate the global economy. Problem is, they first created a terrible asset bubble in real estate, and after that corrected, they are now putting the global economy on central bank life support. As more fiscal borrowing is pumped out into the system, nominal GDP levels atrophy as the ever-increasing debt puts pressure on continuing this flow of monetary oxygen into an increasingly-moribund economy. As the system approaches the Rogoff Level of 90% debt-to-GDP, economies began to sag. Europe is already entering recession, as has Japan; and the US is skipping across the 0% GDP level, skating on very thin ice. Worries abound about China as well.

The Triple-Top Plateau therefore reflects markets at the edge of chaos on whether this huge central bank experiment will work.

Looking forward, history says this long secular bear market should last 16-20 years. The last one from 1966-1982 was 16 years; the prior one from 1929-49 was 20 years, and we saw a similar long plateau around Dow 100 from 1901-1921. The Depression of 1874-1896 was even longer, as was the one from 1837-1859. This puts the bottom out to between 2016 and 2020.

About Duncan Davidson 228 Articles

Affiliation: NetService Ventures

Duncan is an advisor to NetService Ventures, where he focuses on digital media and the mobile Internet.

Previously he was at four start-ups: Xumii, a mobile social service based on a Social Addressbook; SkyPilot Networks, the performance leader of wireless mesh systems for last-mile access, where he was the founding CEO; Covad Communications (Amex: DVW, $9B market cap at the peak), the leading independent DSL access provider, where he was the founding Chairman; InterTrust Technologies ($9B market cap at the peak), the pioneer in digital rights management technologies, now owned by Sony and Philips, where he was SVP Business Development and the pitchman for the IPO.

Before these ventures, Duncan was a partner at Cambridge Venture Partners, an early-stage venture firm, and managing partner of Gemini McKenna, a joint venture between Regis McKenna's marketing firm and Gemini Consulting, the global management consulting arm of Cap Gemini.

He serves on the board or is an adviser to Aggregate Knowledge (content discovery), Livescribe (digital pen), AllVoices (citizen journalism), Xumii (mobile social addressbook), Verismo (Internet settop box), and Widevine (DRM for IPTV).

Visit: Duncan Davidson's Blogs

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