|click on images to enlarge|
Rather than another tedious 1929 to the present comparison, here is a less tedious one. I wanted to highlight a couple of points. The first is that the spread between the actual price and predicted price, as measured by the yellow Z-score has now broken the record for historical extremes on the upside.
The second point is made by the red circles on the charts, showing where flat patterns developed during relief rallies just after 1929. The technical term for this is "frog jumping down steep hill" also known as "the toad tilt."
These time series are multifractal, as discovered by Benoit Mandelbrot and others. This means that scaling may occur simultaneously along the time and the price axis. In other words, one pattern may match another by stretching or compressing both time and price scales.
If this model is correct, we should soon be traveling down a steep slope, probably by next week. If prices increase much more, or even stay relatively static for a few trading days, and the Z-score goes to >5, then I'll have to retire this structural equation cycle model. Either way, there is a lot to be learned depending on what happens next week.
I'll be answering some thoughtful posts over the weekend, good luck and good health to all!
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