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Carl M. Birkelbach
Scientists tell us that at the time of "singularity" called the "Big Bang" all matter and energy were One.
When the negatives separated from the positives, a process was begun through which the building
blocks of our bodies and minds were formed. We are the conscious result of that process from the One.
As we are part of this process from the One, we are part of nature and reflect these inherent force in our
actions and in the marketplace. Price is the end result of all economic and psychological pressures and
by examining the patterns of price movements, insights into the hidden forces can be explored. In the
following, special attention is paid to the examination of these forces through the graphic presentation of
price movements in the market as revealed through the Fibonacci Summation Series, the Dow Theory
and the Elliott Wave Theory.
Historic Perspective
"What is below is like what is above, what is above is like what is below" is one of the oldest known
quotations from antiquity. It is attributed to Hermes Tresmgistus, the Greek name for the Egyptian God
Thoth, whose book Tabula Smaragdina(Emerald Tablet) has been preserved (the Romans called this
God Mercury). Tradition has Thoth as the scribe of the Gods, the inventor of writing and the repository
of all wisdom. Egypt is the source of much our ancient knowledge and has been the principal starting
place for many a search for wisdom. There are occult beliefs that metaphysical truths of the ultimate
reality of nature were revealed to Pythagoras and later to Plato (and maybe to Fibonacci) in their trips to
Egypt. Myth has these secrets passed down to us from the past civilization of Atlantis.
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The history of mathematics, as it is tied to metaphysical philosophy and science, goes back to
Pythagoras(580BC-500BC). Pythagoras is known for his geometric theory, his divine musical harmony
of the spheres and his doctrine that reality at its deepest level is mathematical in nature. Plato(421BC-
347BC) carried on these traditions and believed that metaphysical truths are intuitive to the soul and can
be seen in geometry. He reportedly said "God geometrizes" and inscribed over the entrance to his
Academy "Let no man ignorant of geometry enter here."
This philosophy that incorporates the divinity and the true nature of man into One continued in Spinoza
(1632-1677) and in Teilhard de Chardin(1881- 1955). The Eastern civilizations seem more at home with
these concepts as the sixth century B.C. Chinese Zen philosopher Lao Tzu said in his Tao Te Ching "the
laws followed by the Tao were not laid down by any divine lawgiver, but were inherent in its nature."
In addition to this great gift, Fibonacci in this book answers a problem about the creative reproduction
function of rabbits in endless generations by introducing a mystical sequence of numbers to become
known as the Fibonacci Summation Series. In the Fibonacci Summation Series (Figure 1) each new
number is the sum of the previous two 1,1,2,3,5,8,13,34,55,89,144...and so on. This sequence repeatedly
shows up in nature in the most surprising connections. In one instance, the botany law of phyllotaxis,
has leaves growing from a plant stalk in the Fibonacci pattern. Sunflowers, daises, pineapples and pine
cones also grow in swirls that obey the Fibonacci Series.
The Fibonacci Series also tends asymptotically toward a constant ratio of 1.618 if we divide each
number into the one immediately following it. The ratio had begun to gather special meaning even
before the 15-century Italian mathematician Luca Pacioli gave it the name "Divine Proportion". The
Encyclopedia Britannica also calls this the Golden Ratio (Figure 2) and is algebraically designated by
the Greek letter phi. While not as popular as pi (the Greek symbol used to represent the ratio of the
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circumference of a circle to the diameter, which is 3.1419265...) the ratio of phi also shows up in nature
in a surprisingly variety of ways
The Golden Section (Figure 3) is found by dividing a line into two sections, so that the shorter is to the
longer as the longer is to the whole. Thus one would find that this ratio is .618. The Golden Section is an
important concept in both ancient and contemporary artistic and architectural design and is considered
the most aesthetic proportion. Many of Leonardo Da Vincis artistic works are in these proportions.
A rectangle becomes a Golden Rectangle (Figure 4) when the sides of which are in the ratio of 3 to 5
(0.618) , which again is viewed as the most pleasant esthetically speaking. If a Golden Rectangle is
subdivided and this process is continued and the circular arcs connected, a logarithmic Golden Spiral
(Figure 5) is formed which is similar to the form of snails, animal horns and the spiral of our own
Milky-Way galaxy. To check out other mathematical formulas see the Encyclopedia Britannica and
other sources listed in the bibliography.
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largest of all the pyramids is The Great Pyramid, built by Khufu (Greek-Cheops), the second king of the
fourth dynasty. Made of some 5,750,000 tons of stone blocks, it is the biggest building ever constructed.
As a vehicle for communication it certainly was more reliable than the Great Alexandria Library which
reportedly held the written knowledge of our far ancient past. Literature recorded its destruction by fire
in Shakespeares Anthony and Cleopatra. The Greek historian Herodotus (484-425BC) was told by
temple priests that The Great Pyramid was built in such a way that the area of each of its faces was equal
to the square of it height. The shape of this construction yields some interesting properties. For instance,
one half the base of The Great Pyramid divided into the apothem is equal to our old friend phi.
The Kings Chamber in The Great Pyramid also reveals the Golden Ratio. If one were to split the two
squares of the Kings chamber in half and swing the diagonal down to the base, the point where the
diagonal touches the base is 1.618 in relation to the side of the square. It also appears that each flat face
of The Great Pyramid was designed to represent one quarter of the Northern hemisphere. The height is
to the perimeter at the base, as the radius of a circle is to its circumstance or the pole is to the earths
circumstance. This happens only in The Great Pyramid. Also of interest is that the measurement around
the base in pyramid inches equals 365.24 (if one divides by 10) which is the exact average of a solar and
sidereal year. Maybe the builders were trying to tell us something. See the books in the bibliography for
more revelations about The Great Pyramid.
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Recently, it was reported by the Wall Street Journal (12/9/96) that two teen whizzes found the answers
to Euclids "regular partitioning" problem presented 2,000 years ago. The problem states, given a line
any length, devise a universal geometric method for subdividing it into any number of equal parts. The
answer turned out to use the Fibonacci summation series. The graphic presentation of this solution has
Golden Ratio angles that are same as a measuring tool used to predict future price movements. Even the
sub atomic level incorporates the Golden Ratio. The April 1981 Scientific America displayed a graph of
elementary particles of the Quantum world which showed a cubic symmetry that responded to the
Golden Ratio. Some of these things can be explained away as coincidence. However, the evidence
indicates a correlation between the Fibonacci Summation series and a deeper reality.
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Dow also observed that the primary trend went through phases. For a Bull Market the Primary Trend
went through three phases. Phase I would start from overly depressed perceptions about the future and
see prices rise on the expectation that thing will get better. Phase II is a further rise in prices in response
to things actually getting better. Phase III is when prices rise too far as investors become overly
optimistic about the future. During a "Bear Market", Phase I occurs as prices decline to more realistic
levels on expectation about the future. Phase II would be further decline in prices reflecting reaction to
negative news. Phase III would be the final decline in prices and would reflect an overly pessimistic
view of the future. It is interesting to note that a contemporary view of individual biorhythms duplicate
exactly the phases of the market movements. Observation of price movements is an excellent
measurement of human activity and the hidden forces that drive emotional response.
In 1978 Robert R. Prector and A.J. Frost published the Elliot Wave Principal. In the early 1980's Prector
was the primary guru of Wall Street with his market letter The Elliott Wave Theorist having predicted
the Bull Market of the 1980's. However, he predicted a Tidal Wave collapse of the stock market for
the 1990's. The application of the Elliott Wave Theory to predict the future direction of price movements
is obviously subject to varying interpretations. With this unfortunate and incorrect prediction, reference
to the Elliott Wave Theory have once again become obscure. During the 1990's investors didnt need to
pay attention to fluctuations, as it became a no brainier to just buy General Electric type stocks or a
mutual fund and to hold on.
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except if there is what is called an unorthodox top (to be shown later). Elliott described cycles in great
detail and how they could be broken down into smaller cycles. Each cycle works within the frame work
of a larger cycle. As shown in Figure 9 - top, a major cycle consists of five major moves up with a
correction of three moves down.
The five major moves up could be broken down further (see Figure 9 - middle) into five minor moves
up and three minor moves down for a total of 21 waves and a correction of five minor moves down,
three minor moves up, and five minor moves down for a total of 13 waves.
Breaking that cycle down into great detail (See Figure 9 - bottom) we would have a 21-13-21-13-21
wave cycle up for a total of 89 waves with a correction of 21-13-21 waves down for a total of 55 waves.
Each wave can be broken down further into smaller waves. This method could be carried on infinitum.
As a tip to simplify this process one should consider charts where every line represents a month when
looking for the Primary Trend, weekly charts for Intermediate Trends and daily charts when examining
minor trends. Sub Minute trends can only be seen in intra day activity. Charts below are from my
Introduction to the Elliot Wave Principal.
SUPER CYCLE SC I to SC V
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CYCLE C I to C V
MINOR I to V
MINUTE 1 to 5
MINUETTE A to E
SUB-MINUETTE a to e
The largest cycles Elliott addressed were Grand Super Cycles that lasted several hundred years.
Operating within the Grand Super Cycle are Super Cycles that last approximately 55 to 89 years. Within
the Super Cycles are Cycles which last 21 to 34 years. Within the Cycles are Primary Cycles which last
from 5 to 8 or 13 years. Within the Primary Cycles are Intermediate Cycles which last 2 to 3 years.
Within the Intermediate Cycles are minor cycles that last about a year. Minor Cycles are completed
about every month while Minute Cycles are as little as two days and as much as 13 days. Sub-Minute
Cycles can be measured in hours.
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I have consistently used the Elliott Wave methods in my own market letter The Investment Strategy
Letter which began in January of 1975 with the Dow at 500 to herald in a new series of Bull Markets. I
was quoted in 1979 and 1980 in Barrons calling for a Dow of 2500 (the market went to 2600 in 1987
and then fell to 1600). In September of 1981 (with the Dow at 800) I wrote the now well known "Lone
Bull Letter," which predicted the oncoming Bull Markets of the 1980's and 1990's. Because of the fall
of communism and the new market driven economies throughout the world, in February of 1992 (with
the Dow at 3000), I wrote the "Lone Bull Revisited Letter" in which I predicted (using the Elliott Wave
Theory), a continuation of the Bull Market to above a Dow of 8000. Below is a chart from the "Lone
Bull Letter " dated September 1981 in which I used the Elliott Wave to forecast the BIG UP MOVE!
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UPWARD PROGRESSION
3 x 1.625
1. Minimum AB(x) = BO x = 1.625
= 4.875
2 x 2.00 =
2. Maximum AB(x) = BN x = 2.000
6.000
3 x 2.625
3. Extension AB(x) = BM x = 2.625
= 7.875
DOWNWARD PROGRESSION
3 x 1.625
1. Minimum AB(x) = BO x = 1.625
= 4.875
3 x 2.00 =
2. Maximum AB(x) = BN x = 2.000
6.000
3 x 2.625
3. Extension AB(x) = BM x = 2.625
= 7.875
12 x 0.5 =
D Minimum AB(x) = BD x = 0.500
6.000
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12 x
C Maximum AB(x) = BC x = 0.625 0.625 =
7.500
12 x 0.5 =
D Minimum AB(x) = BD x = 0.500
6.000
12 x
C Maximum AB(x) = BC x = 0.625 0.625 =
7.500
Bibliography
TECHNICAL ANALYSIS OF STOCK TRENDS-------------------------Edwards and Magee
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numbers---------------------------------------------------------------------------Book 4:759
philosophy------------------------------------------------------------------------Book 25:737
theorem---------------------------------------------------------------------------Book 19:901
Euclid------------------------------------------------------------------------------- Book19:899
pythagoreanism-------------------------------------------------------------------Book 25:508
ideas-------------------------------------------------------------------------------Book23:64
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mathematics-----------------------------------------------------------------------Book 23:565
Herodotus---------------------------------------------------------------------------Book 17:909
Thoth------------------------------------------------------------------------------Book 11:731
measurements---------------------------------------------------------------------Book 23:687
construction-----------------------------------------------------------------------Book 18:111
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