Benner's Theory

Samuel T. Benner had been an ironworks manufacturer until the post Civil War panic of 1873 ruined him financially. He turned to wheat farming in Ohio and took up the statistical study of price movements as a hobby to find, if possible, the answer to the recurring ups and downs in business. In 1875, Benner wrote a book entitled Business Prophecies of the Future Ups and Downs in Prices. The forecasts contained in his book are based mainly on cycles in pig iron prices and the recurrence of financial panics over a fairly considerable period of years. Benner's forecasts proved remarkably accurate for many years, and he established an enviable record for himself as a statistician and forecaster. Even today, Benner's charts are of interest to students of cycles and are occasionally seen in print, sometimes without due credit to the originator.

Benner noted that the highs of business tend to follow a repeating 8-9-10 yearly pattern. If we apply this pattern to high points in the Dow Jones Industrial Average over the past seventy-five years starting with 1902, we get the following results. These dates are not projections based on Benner's forecasts from earlier years, but are only an application of the 8-9-10 repeating pattern applied in retrospect.

With respect to economic low points, Benner noted two series of time sequences indicating that recessions (bad times) and depressions (panics) tend to alternate (not surprising, given Elliott's rule of alternation). In commenting on panics, Benner observed that 1819, 1837, 1857 and 1873 were panic years and showed them in his original "panic" chart to reflect a repeating 16-18-20 pattern, resulting in an irregular periodicity of these recurring events. Although he applied a 20-18-16 series to recessions, or "bad times," less serious stock market lows seem rather to follow the same 16-18-20 pattern as do major panic lows. By applying the 16-18-20 series to the alternating stock market lows, we get an accurate fit, as the Benner-Fibonacci Cycle Chart (Figure 4-17), first published in the 1967 supplement to the Bank Credit Analyst, graphically illustrates.

Figure 4-17

Note that the last time the cycle configuration was the same as the present was the period of the 1920s, paralleling the last occurrence of a fifth Elliott wave of Cycle degree.

This formula, based upon Benner's idea of repeating series for tops and bottoms, has worked reasonably well for most of this century. Whether the pattern will always reflect future highs is another question. These are fixed cycles, after all, not Elliott. Nevertheless, in our search for the reason for its satisfactory fit with reality, we find that Benner's theory conforms reasonably closely to the Fibonacci sequence in that the repeating series of 8-9-10 produces Fibonacci numbers up to the number 377, allowing for a marginal difference of one point.

Our conclusion is that Benner's theory, which is based on different rotating time periods for bottoms and tops rather than constant repetitive periodicities, falls within the framework of the Fibonacci sequence. Had we no experience with the approach, we might not have mentioned it, but it has proved useful in the past when applied in conjunction with a knowledge of Elliott Wave progression. A.J. Frost applied Benner's concept in late 1964 to make the inconceivable (at the time) prediction that stock prices were doomed to move essentially sideways for the next ten years, raching a high in 1973 at about 1000 DJIA and a low in the 500 to 600 zone in late 1974 or early 1975. A letter sent by Forst to Hamilton Bolton at the time is reproduced here. Figure 4-18 is a reproduction of the accompanying chart, complete with notes. As the letter was dated December 10, 1964, it represents yet another long term Elliott prediction which turned out to be more fact than fancy.

Although we have been able to codify ratio analysis substantially as described in the first half of this chapter, there appear to be many ways that the Fibonacci ratio is manifest in the stock market. The approaches suggested here are merely carrots to whet the appetite of prospective analysts and set them on the right track. Parts of the following chapters further explore the use of ratio analysis and give perspective on its complexity, accuracy and applicability. Additional detailed examples are presented in the Lessons 32 through 34. Obviously, the key is there. All that remains is to discover how many doors it will unlock.