Category: dow jones

The Bubble Index Contour: DJIA (1871 – 2015)

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The results for The Bubble Index Contour: DJIA from 1871 to 2015 are presented below. There are several features worth mentioning.

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Overall Trend

The first is the overall trend toward larger absolute values as time progresses towards the present.

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23,200 Day Window Growing Pressure

The second most striking feature, which is most relevant to current investment strategies, is the large pressure formation centred on the 23,200 day window. The values in the graph were interpolated with a spline, so there are some artefacts produced. They falsely seem to indicate that the pressure has peaked in the 23,200 window, however, upon inspecting the raw data, this time window has not yet peaked. However, the derivative is close to and fast approaching zero. This would seem to indicate a phase transition of the largest magnitude yet observed will occur in the near future.

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2008-9 Pressure Peaks

The pressure peak below and slightly to the left of the current 23,200 pressure growth corresponds to the bottom of the 2008-9 crash, where the DJIA reach a low of 6,443. This pressure point has a peak which occurred in the 15,000 day window.

The pressure peak below and slightly to the left of the aforementioned 15,000 day window peak was the peak in the 9,500 day window which corresponded to the peak value of 14,200 in the DJIA in 2007.

Other images:

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American Common-Stock Indexes (1871 – 1937) – Alfred Cowles, 3rd and Associates

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American stock data from 1871 to 1937; obtained from Common-Stock Indexes 2nd edition by Alfred Cowles 3rd and Associates.

The Bubble Index and Daneric’s Elliott Wave Count Comparison

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The American stock market appears to be at a critical juncture. On the one hand, various trading blogs such as the ELLIOTT WAVE lives on, suggest a continuation of a Primary 5 Wave Impulse up-trend in place since the 2009 low. Other Elliott Wave traders, like Daneric’s Elliott Waves, place the current up-trend as a B Wave rebound from the 2008-9 A Wave correction. In a previous post I mentioned the connection between The Bubble Index and Anthony Caldaro’s EWC. In this post I suggest a connection with Daneric’s EWC. The graphs below show this connection with The Bubble Index: DJIA. I neither agree nor disagree with Caldaro/Daneric. The comparison is presented here for comment.

Graph 1. The Bubble Index: DJIA (5,040 Days) with Daneric’s EWC
Graph 2. The Bubble Index: DJIA (10,080 Days) with Daneric’s EWC
Graph 3. The Bubble Index: DJIA (20,160 Days) with Daneric’s EWC

The Bubble Index: DJIA (20160 days)

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The Bubble Index: DJIA (20160 days) suggests that there are characteristics of the market which occur over very long time intervals. The importance of long memory processes in financial markets should not be underestimated, as suggested by Mandelbrot via Hurst’s studies of the Nile. The massive window, approximately 80 business years, indicates the fundamental importance of LPPL oscillations in economic and social history.

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USA – Panic of 1857

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The Bubble Index: USA (1790 – Present) (10080 days) peaks in early 1857. I say “early 1857” because the actual date, February 15th, was only an approximate date used to simulate the daily data. And as American historians know, the Panic of 1857 was disastrous and preceded the American Civil War. Note: The daily data is simulated based on yearly data points provided by the Davis Industrial Production Index.

Observations and Updates – USA (1790 – Present)

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Looking at the 10080 day window of The Bubble Index: DJIA, there is a low in 1948 and a peak in 1968, which is followed by another low in 1988; the final peak displayed is reached in November 2007. It is clear that there is a 20 year upswing followed by a 20 year down-swing. Extrapolating this trend, the end of the current down-swing will be in 2028, give or take a year or two. This will be followed by a peak around 2048. What this means, I am not sure; however, in the time period between 1968 and 1988, the DJIA was relatively flat. I could speculate and say that the same will be the case for the DJIA for the period from 2008 to 2028. Then, in the period 2028 – 2048, a new large scale bull market will emerge. (UPDATE: the data from 1790 – Present show that there is not a predictable pattern)

Currently, I am working on extending the DJIA Index from 1896-Present to 1790-Present using economic indicators and stochastic simulation. This will allow The Bubble Index to estimate daily levels in the time range from 1790-1896. Although the data will be simulated and artificial at the daily level, it will be made in such a way to fit the industrial production data going back to 1790. This will allow the creation of a reliable extension of the longer day window indices (1260, 1764, 2520, 5040, 10080 days) back to the 19th century.

UPDATE:

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The Bubble Index: DJIA (10080 days)

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I think this is a very interesting graph.

Here is the output of The Bubble Index of the Dow Jones Industrial Average with a 10,080 day window. Note the peak in late 1960’s and the peak in late 2007. NOTE: Value of 100 corresponds to the maximum level of the index, reached on November 16, 2007. Also, I have included a similar graph of the S&P 500 located below.

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The Crisis of 2008-9 – Dow Jones Industrial

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The following PDF shows The Bubble Index before and after the Crisis of 2008-9. Unlike the 1764 day index, which does not display a spike before the panic, the 10080 day index clearly shows a massive increase. And the same happens with the 20160 day index. What’s striking is that this increase started in the early 1980’s. This increase reaches a peak in November 2008.

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Download 20160 Days PDF


DJIA 2008 Crisis – The Bubble Index