A few months ago I posted (here) the distribution of the values of The Bubble Index on a given day (June 27, 2014). Building upon that idea, by creating an index which shows the distribution evolving through time, The Bubble Index Composite is an index which plots the median of the distribution for all monitored stocks. I plan to produce these composite indices for every global market. For example, I have about 1,400 US Stocks which have 1260 and 1764 day indices. Taking the median of these 1,400 values each trading day and plotting gives the following graphs:
BOJ and Recent Correction: Nikkei 225
The recent stimulus plan revealed by the Bank of Japan on October 31 has been widely talked about by traders and investors. Interestingly, this plan was announced shortly after a peak in The Bubble Index: N225 (1260 and 1764 days). The 1260 day index peaked on September 30, 2014 and the 1764 day index peaked on October 7, 2014.
Elliott Wave Count and LPPL Oscillations
In the following chart, you can see a relationship between The Bubble Index and Elliott Waves. The Elliott Wave Count is from the ELLIOTT WAVE lives on; the blog of Anthony Caldaro. His charts can be found here.
The Bubble Index 1764 days tends to peak with Intermediate waves i, iii, and iv; while The Bubble Index 1260 days tends to peak with Major waves 1, 3, and 5.
Supercycle: Light Blue
Blue: Primary
Black: Major
Intermediate: Purple
The Great Bond Bubble
As Martin Armstrong recently said (here), the current equity correction is a side show to the growing bubble in bonds around the world. Specifically, the 10-Year United States Treasury, as shown in the graphs below, is in the process of bubble formation. The Bubble Index: TNX (2520/5040/10080 Days) shows signs of a long term build-up in bond market tension. Imagine inflating a balloon, eventually it will pop. “When will it break?” is the question everyone is asking. I suggest that we will see it happen once either of the 2520, 5040, or 10080 day indices peak and roll-over. According to Armstrong, this will begin to occur on 2015.75. The Bubble Index does not rule out this date, only time will tell…
Graphs of Recent Market Correction
Here are some graphs of the recent downturn in the S&P 500, Russell 2000, Wilshire 5000, and the DAX; each graph has an overlay of The Bubble Index (1260 and 1764 Days).
LPPL Model Working
Honestly, I am shocked at how well The Bubble Index timed this market correction.
The Bubble Index: S&P 500 (1764 days) peaked on September 22, 2014. That was 21 days ago, the critical time variable, Tc, in the code.
Today’s S&P 500 sell-off was intense, to say the least… down 1.65%. And this wasn’t the only day with huge losses. Since the market peaked on September 19th, it has lost about 10%.
The Bubble Index: DJIA (20160 days)
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.
Bitcoin Update: The Bubble Contour
Below is the output of The Bubble Contour: Bitcoin (BITSTAMPUSD).
The Bubble Contour Map
This is how I imagine the future of The Bubble Index. Instead of producing multiple indices for each window (52 days, 153 days, 256 days, etc…), a contour map will be generated which shows the entire spectrum of windows in a single graphic, evolving through time. As an example I have produced this contour map of Tesla (TSLA) from 2011-02-04 to 2014-08-29. Also, check out the Gold map below Tesla. I will update the Gold map as I calculate more data.
USA – Panic of 1857
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.