This article is a further extension of the concept I introduced over 2 years ago, titled "Markets Trapped in a Contracting Fibonacci Spiral" and the April 2013 issue of Stocks and Commodities Magazine titled "The Contracting Fibonacci Spiral". Many might view this part of the article as a good place to exit, but I would encourage all to read this in its entirety, because it does provide a scientific insight into why cycles sometimes appear to skip a beat. If anyone is unfamiliar with either article, I would encourage to read them to have an understanding for what is presented in this article. I will give a very brief review about the Contracting Fibonacci Spiral (CFS), but it will be nowhere near as comprehensive as the other articles.
The terms Chirality and Spontaneous Chiral Inversion sound like something confounding and what one would here from a bunch of chemistry geeks sitting in a University lounge. I will assure you however, that by time one finishes reading this article, the terms will be seen as not only easy, but very interesting scientific principles.
My BScH. and MSc. are in science, with a focus on Organic and Biochemistry, so I will draw heavily on simple examples. Everything has a certain orientation, or stoichiometry. Chirality refers to the "handedness" or orientation of a system (molecule in this example) in much the same way people are right- or left-handed. Chiral is the Greek word for hand, so the word should be viewed as a simple term borrowed from another language. Everyone has right and left hands that are mirror images of each other, yet can not align with each other...this is the principle of chirality. Chiral objects can not be superimposed on their mirror image.
Chemicals can exist in two forms as seen in Figure 1. A molecule can have the identical chemical structure, yet have a chemical bond on the opposite plane. Since all proteins or any other sort of binding interaction requires a key-lock fit. Imagine having a key for a house having the same etching, but on opposite sides...the right pattern for opening the lock exists, but it is in the wrong orientation. Amino acids for life on Earth use the L-configuration for life, while D- versions do not fit (but can be synthetically created). One example of this is thalidomide...the correct molecular orientation is non-toxic and was originally used to treat nausea in pregnant women but the chiral variation of this molecule can cause birth defects.
Figure 1. Chirality (often termed "handedness) between a molecule with the same chemical composition, differing in the orientation of the illustrated "R" groups.
I have provided a series of different links at the very end of this article to illustrate that chirality plays a huge role in nature and since humans are part of nature, it is no surprise that chirality can spill over into areas such as stock market cycles.
With many cycles, especially numerical cycles such as the CFS are sequential and of a contracting or expanding nature, it sometimes occurs where it appears that there was a skip. I will try to explain this by introducing the concept of a "Chiral Inversion". Contracting Fibonacci Spirals can occur in relation to market tops or bottoms, which would give them a right or left handed orientation (termed simply as + or - in Chemistry based upon the way they rotate in light), which literally indicate the "spin" of the pattern. I am coining the CFS at tops as + and - for bottoms and this could occur based upon any different cycle. To deal with a shift in chirality within its trend, a "normal" trending pattern will have an N placed after the + or an R to indicate "reversal". In front of all of this, the initial labeling scheme to identify the market will be its name, followed by a dash to indicate the starting point of the CFS spiral, followed by a superscript indicating the current time post in play. As an example, S&P-343+,R. This is going to be the scientific notation I will use going forward to identify where we currently are in this pattern for a quick reference.
Figure 2 illustrates the S&P-343+ chiral version of the CFS, which was supposed to have a top on December 27th 2012. The furthest this pattern was allowed to extend was May 21st, 2013, that should have had a sharp decline. To quickly review the concept of the CFS, it started in 1932, with subsequent market tops occurring in 1966, 1987, 2000 and 2008. All of these times follow the contracting Fibonacci sequence as in 34, 21, 13, 8, and 5. Each of these points in time were termed "time posts", with the remaining time posts being 3, 2, 1 and 1 years prior to reaching a point of singularity sometime in 2020. For a market to have 4 signature time frames of a Fibonacci Spiral and cease has a very low probability assigned to it occurring by chance. The prior 4 time points corresponded to tops in the broad stock market indices that were followed by a sharp decline. The chiral pattern in this instance is deemed positive, but there appears to have been a chiral inversion at the current time post, which suggests a bottom is due sometime in 2016 (rather than a top), with a top occurring anytime between now and then. Whether or not this becomes the completion pattern of the CFS remains to be seen...does it again reverse back to its normal spin, or will the reverse of the pattern play itself out until the point of singularity has been reached? This remains to be determined.
Figure 2. The normal Contracting Fibonacci Spiral the S&P 500 Index was following includes a rotation of the segment from 2013 until present, which appears to have had a chiral inversion. Based upon this, logic dictates that the remaining time posts should have cycle lows noted on the subsequent years (unless there is yet again another inversion). Translation of the remaining pattern is likely to be extremely volatile to say the least.
I came across an extremely interesting article that has attempted to explain why Contracting Fibonacci Spirals Form in Nature. Human psychology is intertwined with Fibonacci-related ratios that pops up with Fibonacci expansion patterns (1, 1, 2, 3, 5, 8, 13, 21, 34, 55, etc.) and ratios, so the explanation within the article dealing with physical patterns can be taken and applied to human behaviour, except the physical structures in which the Fibonacci spirals are overlaid rely on the framework of society that triggers them to form. What causes an inversion in the pattern is an uncertainty at this point in time, but further research into this area will come as more time progresses. The take home quotation from the above article is that "The least energy configuration for particles is dependent on the geometry of the space in which the particles are confined -- just look at the thorn bundles of various cacti," Cao explained. "I only know that the Fibonacci spiral patterns are not the least energy pattern for a sphere (try to imagine a football) or flat plane (we can make Fibonacci spirals on street pavement, but it is not self-assembled). However, Fibonacci spirals do appear on conical receptacles in nature. I conjecture that Fibonacci spirals are the least energy configuration on conical supports, but I cannot prove it." The following thought strongly suggests that the projected element of collective human psychology has a mapped out conical 3 dimensional pattern that creates Fibonacci spirals driven by the geometry dictating the layout for driving the least energy configuration pattern to form (i.e. a Fibonacci spiral, whether it has an expanding or contracting nature.
With the current broad stock market indices climbing higher and the pattern having a chiral inversion (as best can be determined), this has profound implications going forward. Either the markets top out between now and February 2014, or continue to advance for 12-18 months, followed by a low due around June 7th, 2016.
The current cycle in the positive spin indicates market tops. The inverse of this would be negative, which would imply market bottoms occur for a given market every time a CFS time post was hit going forward. Figure 3 illustrates the pattern that has held out for gold so far, which has a negative spin. Gold did not follow the expected pattern , so this was one of the factors (along with the S&P 500 Index not topping out around May 21st, 2013) that lead to further research to come up with the notion that "chirality" could be in play in stock market cycles.
Figure 3 Contracting Fibonacci Spiral, which as a negative spin (cycle lows denoted by each time post). The dates I have used are not "exact", so please excuse any obvious points in time that are not precisely at the lows. Based upon the most recent bottom, the next low is expected around June 4th, 2016. I am doing further research into where to place the bottom and how that affects placement of the current setup...more to follow in the coming months.
I may be in error for assuming the chirality of the CFS exists in the former highs or lows occurring for a change in behaviour as it reaches its point of singularity. Rather, the possibility exists that the a Contracting Fibonacci Spiral could be viewed as a - spin, where an Expanding Fibonacci Spiral has a + spin.
This has yet to be determined by what happens over the course of the next 7 years. Interesting, if the CFS pattern follows 3, 2, 1, 1 with a top at some point in late 2014 to mid 2015, followed by a low around June 2016, then the proposed interpretation of the chiral inversion is correct. If an expanding pattern is occurring where 1, 1, 2 and 3 have yet to form, then bottoms should occur around May 2014, 2015, 2017 and 2020. This noted discrepancy should be resolved within the next two years and should literally indicate which hypothesis is correct.
In summary, the proposed chiral inversion within the CFS refers to a switch in direction for how the spiral is set to reach its point of singularity, while the alternate hypothesis (explanation) refers to a switch from a contracting to an expanding mode.
Since the CFS has an altered configuration, the pattern suggests a higher high is put in place sometime between now and June 7th, 2016, with an anticipated low occurring around this point in time. There is no method to determine when the high occurs, but the next time post should mark the "low" for the broad stock market indices. This chiral inversion pattern if it continues to play out will flip other time-related cycles on their heads, as the 4 year Presidential Cycle. Larger cycles always trump smaller time frame cycles, so whenever a shorter-term cycle appears to be out of phase, start looking at the longer-term patterns for changing trends.
There are many crossovers in the field of science that more often than not find utility and function at a totally unexpected level in some unexpected area and this is probability. The following framework of the CFS cycle proposed a few years ago had an unexpected twist with regards to chirality and spontaneous chiral inversion, which just demonstrates that the process to scientific discovery often uncovers more wrinkles than not.
Below are a total of 12 different articles that I pulled together to illustrate how big a deal chirality is in manufacturing drugs as well as nature (all amino acids have an L- orientation, while sugars have a D- orientation). Of all of the different articles, #12 is by far the most interesting because it describes what causes the drive for the formation of Fibonacci spirals in nature. The other articles help to define what chirality is and what effects it can have.
That is all for today. The most important take home message is that the process for discovery more often than not takes one on a journey that has many unexpected twists. I would encourage anyone with a mathematical/computer background to tinker with the above ideas to further expand the understanding of collective human psychology.