6.8 Breaks and Mania Targets S&P 500SPCFD:SPXholeyprofitClick below to read the first post framing the 6.8 as an inflection point. There's strong evidence to support the idea 6.8 breaks can induce mania conditions. Let's first address the obvious objection to using one single line from established by two prices I picked, which could be easily curve fitted. The arguement here isnt the 6.8 is important alone. What I found was there is a common path through the previous fibs and then this builds up to the 6.8 break where common outcomes happen. The pattern calls for there to be observable things at three different levels and then the 6.8. So even if the 6.8 was perfectly fitted, those previous levels should then be meaningless. If I can show you they're not, that's weird. Agreed? Good. The Tech Bubble I tested this on many different things by building simulators that could find the swings I'd draw, map in the fib and then let me do bar by bar playbacks of it and get programmatic reports. To keep the post readable I'll focus only on the main stocks in the Nasdaq bubble. Few reasons I pick this one; -- I straight up believe we must be in 1996 or 2000 like part of a bubble now. I may be wrong and I dont make trade plans that demand thats right. I'll trade what is happening. But in my heart and soul I will be stunned if we do not see something spectacular in the coming years. -- Nasdaq bubble was the scariest one in the failed 4.23 model. When I started to examine ways the 4.23 model could fail the nasdaq bubble was scary. It proved I could get all the same signals I had now and be wrong by such a big margin that it didnt matter I was eventually right. It was one of the big drivers for the study because I do well in markets that pullback and reverse. With no pullbacks to draw fibs from I get lost. -- These were the initial rallies in what would become today's biggest stocks. So thats interesting to look at, right? Inception Swing When I attempted to backtest my previous work programmatically I found it very hard to do auto swing for the fibs I'd drawn. This made me realise although my fibs were drawn on good swings and had decent reactions paths through them my inability to be able to explain this in set rules must mean its inconsistent. This made me work on more consistent and objective swings and one of these is the "Inception swing / rally". It's the low to the first major high of the first trend move in the asset. It can only be used on something that has uptrended (or down) through its lifetime. When I used this swing to test my 2008 4.23 extension thesis I instantly seen that was wrong and I should have expected the 4.23 to stall and break. So thats the rule for this. And if you want to follow along at home, I propose this works on most things. I didnt check them all but i checked a lot. The rules are really simple to test on other assets. Its the low to the high of the first major rally. Which will often be entirely non subjective (although not always). Path Expectations What I want to do in this post is show you 6.8 breaks and mania targets. This is the actionable part of the research because we are at a 6.8 now. But you should pay attention to the paths price takes to get to the 6.8. I propose an approx set of rules. These can be generated from drawing the inception swing on the DJI and then making a model based on the market up to the 1929 top. So that is building a model based on the first ever rally in a US index and then testing it against the majro stocks of the Dotcom bubble up to the 6.8. They are; 1.27 - 1.61 zone = Chop, stall and eventual strong action on the break to the 2.20 / 2.61 fibs. 2.61 = Stall and possible sharp pullback. Strong action when broken. 4.23 = Stall / pullback but extremely strong when broken. two legs into 6.8. Should look like this: But I digress. Blind Fibs For most honest results doing this zoom right into the starting action. Draw the fibs on the swing when you can only see that bit of the chart and then expand to see what happened. Never draw fibs when you can see where the extensions are landing while you are drawing them. Higher Order Fibs Could write a lot on the work Ive done to find and test this but to keep it simple I'm just going to propose the fib sequence can continue to run after 4.23 and it goes 6.8, 11.3, 17 and 29 (point something, im rounding because im lazy). So those are the targets I have for 6.8 breaks in the test. Okay? AAPL AAPL is probably the weakest example of the main stocks but its still fairly good. The move starts with resistance at the 1.61 and 2.61. The trend goes into strong acceleration above the 2.61 and this one actually tops on the 4.23. This study is on 6.8 breaks and we hit that later. In this instance we got the 6.8 pullback (very common) to close to 4.23. When that broke, it went super parabolic! Pullback from around the 11 level. 50% crash off the 29 level. MSFT Early action has 2.20 > 1.61 pullback. 2.61 break / retest and boom. 6.8 break and trend to 11. 11 holds retest. And then strong uptrend to 29. From where it kept going, but when planning a possible SPX 6.8 break we're talking 20K or so target on this so there's a limit to how far its worth planning ahead. We'll stop at 29. AMZN Then mega boom. Modern Day Extrapolation If we map the same ideas on the DJI of today we have something like this. Which would make me the mooniest moon-boi around if we see the 6.8 break. But while the 6.8 decision point is pending, this is the time there is most bear risk. In a standard distribution we drop from this level more often than not. Usually not less than 40% and if over 60%, usually over 75%. If the low isnt in the 40-50% range this is usually fatal for the foreseeable bull trend. ================================================================================== Responsibility note: although i have high "conviction" one of these boom / bust resolutions to this level will come, we are looking at weekly and monthly charts and this could be entirely correct without there being any of the major exciting action in the next couple years. Price could trap around the 6.8 for a long time. Although the evidence for big reactions at 6.8s is compelling, it is not enough in and of itself to place trades on. It's only a long term levels and style roadmap.