Friday, October 14, 2011

2011.10.14 DJIA: Long $ Short Term Predictions






























click on images to enlarge



















In honor of this historic occasion, I have represented the very long term DJIA chart above.

If I was long this market, I would be very very afraid.  According to this model, this level of divergence was last seen in 1929 where the actual price is so much higher than the predicted price. There are other instances of higher divergences, but they have always occurred on the downside, not on the upside.  Of course, "this time it may be different."

I would rate the chance of a significant correction next week to be extremely high. Of course, it is also possible that this particular cycle model may be ready for /dev/null or the bitbucket, or the dustbin.  I don't think so - but I'm biased.

Visit econocasts.net for free sample trading model downloads. 

8 comments:

Oliver said...

Hello,

I find the work that you do here quite fascinating. I must admit, I do not fully understand how you calculate the predicted value line. I am very keen to learn more about your methods. Is there some reading/books/articles that you could point me too.

One final comment, I see on your shorter-term charts that you note the current price, predicted price, and current Z value. Would it be possible to have this information on the longer-term charts as well?. Especially the Z score which is hard to gauge when the data is so condensed.

Keep up the great blog

Ollie.

Anonymous said...

In your opinion, what do you think will be the "driver" for the next catalyst to the up-side? What will save the DJIA from the gutter?

I believe there will be advancements in solar energy, water filtration (10 or more years from now), and maybe biotechnology. Over at GoldScents they state biotechnology has been in a consolidation phase for over 10 years now, ready for a bull market.

http://www.goldscents.blogspot.com/

-Zero_Sum

Oliver said...

Hello,

I find the work you do here very interesting. I must admit, I do not fully understand how you calculate your predicted value line. Would you be able to suggests some reading/books/articles where I can learn about your methods.

Keep up the good blog

Regards

Oliver

Paolo said...

Oliver - I will put together a linked bibliography on a separate page, but it may take me a few weeks. Meanwhile, this is "The Bible of SEM." http://tinyurl.com/3za5lvv
Paolo

Paolo said...

Zero-Sum, you asked "In your opinion, what do you think will be the "driver" for the next catalyst to the up-side? What will save the DJIA from the gutter?" I'm assuming the DJIA is a proxy for the economy as a whole.

I think you are right that technological progress is a key driver of economic expansion. I also think economies are cyclical, so that while the DJIA may be headed for a low, in a longer time frame one could also say it is headed for a new high!

The two areas I think will thrive are commodities in general, but especially agricultural related issues and "specialty metals" like rare-earths, thorium and uranium. If the "global warming delusion" lifts, which I am expecting since we are heading into the 30-year cold phase of the Pacific Decadal Oscillation (PDO), it will remove barriers to expansion of coal, gas and oil.

The other area are biotech and nano tech. I think both of these have been in an incubation phase, as you put it, and are ready for prime time during the next economic lift-off.

Before any of this, I think we have to work off the global economic credit excess first, and I suspect the upcoming phase will be painful, but it will make possible investing in relevant issues at good valuations.

Paolo said...

Oliver, you said: "I see on your shorter-term charts that you note the current price, predicted price, and current Z value. Would it be possible to have this information on the longer-term charts as well?. Especially the Z score which is hard to gauge when the data is so condensed."

I am sorry I did not make it clear that the Z-score is not derived from data specific to the time period illustrated by the charts. The end-of-day Z-score is the same since it is calculated from the same baseline, even though the charts begin at different times.

Anonymous said...

I am relieved to hear I am not the only one who believes Global Warming is not as genuine as people portray it to be. Thanks for the reply, I appreciate it very much.

-Zero_Sum

Oliver said...

Paulo,

thanks for your answers, as you say, should be an interesting week.

Regards

Oliver