Here is a definition of a fractal;

A fractal is a natural phenomenon or a mathematical set that exhibits a repeating pattern that displays at every scale. It is also known as expanding symmetry or evolving symmetry. If the replication is exactly the same at every scale, it is called a self-similar pattern.

The example I like best is that of the coastline. It does not matter whether you take a 20km. piece of coastline or 20 meters or even 2 centimeters, the pattern is essentially the same for all three. In the above charts we have the Bigchart showing roughly 20 years worth of action in the SPX. It has been a very controversial issue whether or not the top was in with the tech bubble in 2000. The Gainsville boys have generally subscribed to this view and therefore could not embrace the idea that the great recession breakdown was simple a wave c in a 4th wave, to be followed, of course, by a 5th wave. There is a lot of deference for these guys so most EWavers went along with that count. Furthermore broader market indexes generally do support that view. But they have been wrong before!

Value, as we have pointed out ad nauseam ,  is simple an income stream divided by 1 plus the interest rate. With interest rates at zero or close to that value simple becomes the sum of all future positive cash-flow, which is infinite. Therefore a market index cannot be overvalued with interest rates this low. Of course interest rates at zero is an economic distortion of huge proportions but, given that they exist and even if you do not accept them as real, it is still possible that the index goes a lot higher. Should the smaller fractal follow the bigger one, assuming the bigger one does not rise much further, we could see the SPX approach 2500, or roughly another 25%, no problem at all. Not sure I believe it!

The past 3 /4 months have been exceptional. First the year started with the worst 10 days ever – ever goes back to 1894. Then the recent rise, starting around Febr. 11th,  has displayed the best performance for the past 90 years and is still ongoing. Back to back madness like this should warrant caution, but this stupid thing may still go up further as long as the Central Bank narrative keeps the market in it’s spell.

I am not particularly happy with the above count. It seems a little contrived or artificial to me, but then we live in artificial times. This index moves roughly 200 points 4 times in about a year, depending where you put the top. That is a lot of movement without any headway, mostly created by Greenspan, Bernanke and the “data-dependent” lady and with a little help from Draghi, China, Japan and just about every other country and also more recently from the likes of C Lagarde of the IMF. Remember that it takes a Pavlov to make a Pavlov dog, and now the New Normal has essentially become the New Abnormal and is universally accepted as gospel throughout the corridors of haute finance. Except it cannot work. It is a bit like the perpetual motion machine which cannot exist under the rules of nature or physics, that is an open and shut case thanks to brilliant minds. Economics has not been endowed with an equal dose of brainpower and is still wrestling with ceteris paribus. Soon that may no longer be a reason to propound blatant nonsense. Wave 3 could take care of that.

By the way, so far at least we haven’t traded above 13646 on the TSX either. That was three weeks ago, a virtual lifetime in today’s terms.