Benner-Fibonacci cycle gives another reason for major stock market low to be next big play in 2011

On August 2, 2009, I published a post about the Benner-Fibonacci cycle showing that 2010 would provide a major peak, then 2011 a major low. While this cycle method isn't foolproof in terms of pinpointing each absolute high and low, it is very intriguing. Especially since the stock market bottomed in March 2009, so there may be a two-year trough echoing from it, after a turn cresting this week. So here's a reprise in which I'll copy in below that prior post, including charts and references:

8/2/09

The markets may be ready for a pause or pullback, according to a variety of indicators. But what happens after that - does it turn into a dive to new lows? or just a pause before the bull dons horns again and rallies higher (even if only a cyclical bull within a secular bear market)? Well, there's no guarantee that the market goes higher after a pullback. But there are some methods that suggest it - so let's take another look at concepts that do: the Fibonacci and Benner-Fibonacci cycles.

There are ideas of using Fibonacci for projecting cycles in the markets, as shown in the book by Frost & Prechter, Elliott Wave Principle (primarily at pages 147-150), which the authors then folded in with Samuel T. Benner's theory to create a Benner-Fibonacci cycle. Previously I reviewed this as a variant of the Decennial cycle, when I posted Cycles review, Part X: The Decennial Cycle here (May 23, 2009) under the "Cycles Review" label. As I posted earlier today, my interest in this was piqued as my eye fell on it last night and in pondering the possibilities of the rally extending for a complete 16-17 months from March, into 2010. I don't believe that this is "written in concrete" as a sure thing. But if the levels we're now testing in equities do not form a top that sends the markets back to new lows (such as 600 or below in the S&P 500 (SPX)) - which we may know if we see the market get support above 890 in the SPX on a pullback - then we need to consider these factors as part of the mix.

Actually, if you look at the Decennial cycle chart in that prior post, you'll see another basis to think that the rally may extend and then we see some level of a top in 2010 with weakness following that into 2012. But, that's another point (and sorry, these don't conveniently line up!). Below are the original Benner cycle and the modified Benner-Fibonacci cycle charts, along with the information about them from that prior post. Then, I've added some quoted material from the Elliott Wave Principle book about these, and then at the bottom are the extension dates that I calculated using the modified Benner-Fibonacci cycle for future projections:

There was a fellow called Benner who apparently went broke due to a hog cholera** outbreak (and probably other reasons) during the 19th century, who upon retirement studied markets and published a cyclic pattern in 1875. Then, A.J. Frost (co-author with Bob Prechter of The Elliott Wave Principle) elaborated on Benner's cycle using Fibonacci. Benner's 9-year cycle is below, followed by Frost's Fibonacci-based elaboration of it:

Now I'll quote in some of the information about the Benner and Benner-Fibonacci cycles from pages 150-151 of the Elliott Wave Principle (EWP) book by Frost & Prechter:

Samuel T. Benner was an ironworks manufacturer until the post Civil War panic of 1873 ruined him financially. ... In 1875, Benner wrote a book entitled Business Prophecies of the Future Ups and Downs in Prices. ... Benner's forecasts proved remarkably accurate for many years, and ... [e]ven today, Benner's charts are of interest to students of cycles and are occasionally seen in print, sometimes without due credit to the originator.

Benner noted that the highs of business tend to follow a repeating 8-9-10 yearly pattern. ... Benner noted two series of time sequences indicating that recessions (bad times) and depressions (panics) tend to alternate ... Although he applied a 20-18-16 series to recessions, or "bad times," less serious stock market lows seem rather to follow the same 16-18-20 pattern as do major panic lows. By applying the 16-18-20 series to the alternating stock market lows, we get an accurate fit, as the Benner-Fibonacci Cycle Chart (Figure 4-18), first published in the 1967 supplement to the Bank Credit Analyst, graphically illustrates.

That Benner-Fibonacci Cycle Chart is the second chart image in my prior post quote, above - the one that has the footnote saying "Peaks: 8-9-10 repeat. Toughs: 16-18-20, repeat. Major Troughs: 16-18-20, repeat." Here are the date extensions I calculated using the Benner-Fibonacci cycle -

Peaks after 1983:
1991, 2000, 2010, 2018, 2027, 2037

Intermediate lows after 1975:
1995, 2011, 2029, 2049, 2065

Panic lows after 1987:
2003, 2021, 2041, 2057

COMMENT: It's very interesting. And yet, it certainly didn't give the best guidance for big market turns. For example, 1983 was a nice peak, but if you shorted from the high that year, you would have been really hurting into the peak of 1987! So, 1987 was a peak AND a panic low! (Almost makes me wonder if one should try to re-set the cycle "clock" from that year?!)

Note - it's also possible to use Fibonacci time to project cycle turns, as I mentioned. Right now, all I can do is point that out, and readers may want to consult those pages in the EWP book for more on that. The dicey thing right now would be selecting which Fibonacci times to apply. It's pretty obvious that significant starting points would be 1974, 1982, 1987, 2000, and 2007. The discretion starts to come in when deciding which numbers to apply next. Here are some examples we can already draw:

1987 + 13 = 2000
2000 + 3 = 2003
2000 + 5 = 2005 (hmmm?)
2000 + 8 = 2008 (important intermediate low AND high points)
2003 + 5 = 2008 (ditto)
1987 + 21 = 2008 (ditto again!)

2000 + 13 = 2013
2003 + 13 = 2016

2008 + 3 = 2011
2008 + 5 = 2013
2008 + 8 = 2016

But remember, these dates immediately above are just some Fibonacci numbers tossed together and not the result of any serious analysis of what's likely for cycle tops or bottoms. Perhaps in a later post we'll be able to show something more seriously looking at that. For now, I'd consider these dates as something to consider alongside other cycles, and/or Elliott Wave, analysis projections.
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** PS - Manfred Zimmel's recent newsletter remark about the significant of a man being killed during this year's July (2009) running of the bulls at Pamplona, has really got me thinking about the idea of the "hog cholera" and this year's "swine flu" - both deadly to pigs. You know the old saying - in the markets, bulls make money, bears make money, but pigs get slaughtered. There really may be a lesson here, if it suggests that the "piggish" time of wild market peaks is over - and maybe we're going to be done with deep troughs for a while too? Pigs feed at troughs too ... maybe the markets will move - perhaps well! - within the 2007 peak level and the 2009 trough level for a while ...? Then again, maybe it means that traders' ability to "buy the dips" isn't so available in the current environment either? (or alternatively, maybe it means that the pigs will rule for a greedy rally to come?!) Nothing serious I'm putting forward with this, just "food" for thought!