How does one know when a culture has peaked? Is it possible to chart the rise and fall of nations? More importantly, what happens when that fateful cultural climax has been reached, and can anything be done to protect against the decline sure to follow? These questions and more have perplexed and captivated philosophers and historians for centuries.

In surveying the history of the decline and fall of empires and cultures, it is easy to see—with the benefit of hindsight (which is always 20/20)—the summit of cultural achievement and the subsequent slide into oblivion. Entire histories have been written which chronicled the rise and fall of many nations. Yet at no time during the course of these great empires were the men and women who lived in them able to apprehend with any sense of clarity just where they stood in the timeline of their own national existence. They lacked the tools at our disposal, tools which allow us today to discern with precision where we stand in the timeline of history.

It is not the philosopher, nor the historian, nor even the sociologist who possesses these tools and is best equipped to feel the pulse of a culture and know its waxing and waning, its peaks and its valleys. It is the economist—the youngest science, as von Mises called it—to whom this knowledge belongs, for the sum total of any nation's collective hopes and fears is always to be found embedded within its economic system. The everyday, real-world decisions which shape and govern the course of a nation's affairs are made not by the democratic vote or by autocratic decree, but by the "Invisible Hand" of the free market. It is the day-to-day trading, the buying and selling decisions made by countless millions, which ultimately count for the true thoughts, feelings and desires of a nation. Money is the medium through which these decisions are made, and the financial markets are the mechanism in which the consequences of these decisions are recorded.

This leads us to an inescapable conclusion: if the financial markets contain the sum total of a nation's desires and dealings, then the financial markets must contain the road map, as it were, of where a nation is headed, whether up or down. Accordingly, concepts such as progress and regress can only be analyzed within the context of the financial marketplace, and charts—which are a record of these transactions—are the maps that contain this knowledge.

Charts contain the sum total of two major variables—supply and demand (as measured by the priceline) and time, which is the only constant. The chart—much like the collective national progress it represents—is governed by the critical variable of the time cycle—a variable which is a controlling influence over everything in the created cosmos. Therefore, when we look at a price chart we are looking at the combined influence of cycles in price and time, which are one and the same.

A cycle is another name for a circle, which represents a 360 degree rotation and return to a point of origin. A cycle—like a circle—is further characterized by its divisibility into two equal parts, whether vertically or horizontally. This point of divisibility we call the "mid-point." Therefore, charts—which are the roadmaps of nations—must be interpreted by the geometric guidelines of the circle. Geometry, more than any other science, is the key to unlocking the secrets of the realm of finance and is the basis of what is termed "technical analysis," though we prefer to call it "financial geometry."

The ancient Sumerians, Egyptians and Greeks were intimately acquainted with geometry and, lacking a developed system of numbers, accomplished much of their scientific feats and astronomical computations using geometric principles. Somehow, they recognized that this fascinating science contained the keys to unlocking the hidden doors of natural understanding. Whether they realized it or not, the reason for its accuracy and usefulness is that geometry is the only science capable of properly explaining and representing the all-important cycle, or circle of time.

Within geometry, there is what is known as the prime family of circles: spheres, parabolas, and ellipses. These basic patterns, which share the common trait of being divisible in half so that each side is equidistant from its midpoint, form the basis of financial chart analysis and are the visible manifestations of the all-important time cycles which control price movements. It is this science of discerning circles, or cycles, in price charts that forms the basis of this incredible new science we call "parabolic analysis."

The most visible parabolic patterns are visible in long-term charts, such as the one showing the Dow Jones Industrial Average from 1969 to the present (see charts below). The Dow is the road map by which the progress and regress of American culture is read. From 1949 until January 2000, that path of progress took an overall upward trajectory. But at the dawn of the new millennium, this path crested. Note the pronounced dome-shaped parabola which now has control over the price movement of this index. At the crest near the 12,000 level—which represents the precise mid-point of the cycle—the left-hand side of the parabola has traced a cascading path which the Dow—and American by extension—must ineluctably follow. This path traces down to the 4000 level—a level last seen at the beginning of the 10-year cycle this parabola represents, a cycle which will bottom in 2004.

Notice also how each major level along the way is marked by either a solid or a dashed line. These may be likened to supporting floors and, as they are spaced at even 2000-point intervals, will provide for corrective bounces at each floor on the way down. This concept of support and resistance is based on the well-known work of P.Q. Wall, a concept he calls "Dynamic Web," or "Price Equilibrium" theory. Just as each level will act as a temporary support and respite from further decline, the level immediately underneath it acts as a magnetic attractor, irresistibly pulling prices towards it. On the way up, this has the opposite effect of pulling prices higher. This explains the Dow's remarkable performance of the past two decades. It also adequately explains the impetus and galvanizing force behind America's rise to technological progress and economic/political prominence in recent years. But as American is about to discover, that impetus is a two-way sword, which can be just as fatal as it can be helpful.

The second Dow chart is the same timeframe as the previous chart, the difference is that it shows the path of the priceline from a different perspective. Note the parallel bowl-shaped curves which have guided the Dow to ever-higher levels from its starting point. The mid-point of this bowl—which is but a half circle, or cycle—is approximately 1975. The peak came in January 2000, which means the upward curving support carried prices for 25 years. That is exactly half of the Levitical 50-year Jubilee cycle mentioned in the Bible, a stunning testimony to the accuracy and symmetry displayed in all of God's handiwork.

Since the first two curves have been violated (numbered 1 and 2), it remains for the third and fourth parallel curves to keep the price decline in check. However, this is a highly doubtful proposition at this point as the primary supporting upcurve has been penetrated, and once this happens, it signals that the bull market is officially over. The over-arching parabola in the first chart has now taken over the predominant guiding influence and will act to drive prices lower in the years ahead.

The lesson that can be learned from this study is that cultures—like markets—must keep pushing and progressing to ever-higher levels of achievement in order to maintain liveliness and supremacy. This upward push—which Adam Smith described as the "Unseen Hand"—can now be graphically represented as the universal parabolic formation in financial charts. It is this alternating current of upcurve and downcurve, ascending cycle and descending cycle, which guides the destiny of peoples and their markets. And if our reading of the chart is correct, America has seen her apex as manifested by the mighty force which guides the Dow.

Clif Droke
November 18, 2000

Clif Droke is editor of the weekly Leading Indicators newsletter, covering the U.S. equities market outlook from a technical perspective as well as the general economic outlook. He is the author of the recently published book, Technical Analysis Simplified. For a free sample issue of Leading Indicators, send name and mailing address to cdroke9819@aol.com or mail to: Leading Indicators, 816 Easely St., #411, Silver Spring, MD 20910.